A stark warning has come from one of the most respected investors of the past 50 years. In his recent newsletter, legendary stock market bubble spotter Jeremy Grantham warned, in unequivocal words, about the overheated 2021 U.S. stock market—
“The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble,” says GMO’s co-founder Jeremy Grantham.
“Featuring extreme overvaluation, explosive price increases, frenzied issuance, and hysterically speculative investor behavior, I believe this event will be recorded as one of the great bubbles of financial history,” wrote the investor.
He places this stock market bubble right beside the famous South Sea bubble of 1720, the 1929 market crash and the dot-com bubble of 2000.
“These great bubbles are where fortunes are made and lost – and where investors truly prove their mettle. For positioning a portfolio to avoid the worst pain of a major bubble breaking is likely the most difficult part,” he wrote.
He warns the bubble will burst in due time, “no matter how hard the Fed tries to support it, with consequent damaging effects on the economy and on portfolios.”
Grantham’s favorite stat is Tesla’s ridiculous overvaluation of the company at $1.25 million per car sold. By comparison, GM is valued at $9,000 per car sold.
Grantham’s other red flags include…
• The “Buffett indicator” is the ratio of total stock market capitalization to GDP— it broke through its all-time high last hit during the 2000 dot-com bubble.
• A record 480 initial public offerings (IPOs) launched in 2020. Companies rushed to take advantage of screaming investor demand (this exceeded the 2000 bubble record of 406).
• A total of 150 non-microcap companies (more than $250 million) have more than tripled in 2020, which is more than three times as many as any year in the previous decade.
• The volume of small retail purchases of call options on U.S. equities increased eightfold compared to 2019 volume. This value says small investors is now straight-up gambling, not investing.
Our recommendation: Buy some physical Gold, Buy Silver… think of them as safety and insurance assets to own when the bubble bursts.