GRANTHAM: The Stock Market Will Run Deep Into A Bubble Before It Crashes

Jeremy Grantham is one of the best in this business of forecasting.



From BusinessInsider

GRANTHAM: The Stock Market Will Run Deep Into A Bubble Before It Crashes

SAM RO

You could argue that Jeremy Grantham is bullish.

In a new quarterly letter to GMO clients, the gloomy veteran fund manager predicts the S&P 500 could see another 10% surge from the 2,041 level we're at today.

"My personal fond hope and expectation is still for a market that runs deep into bubble territory (which starts... at 2250 on the S&P 500 on our data) before crashing as it always does," he wrote.

We should remind you that exactly a year ago when the S&P 500 was at around 1,790, Grantham made a medium-term prediction that the market could see gains of 20% to 30% in one to two years. That call was actually more bullish than the typically bullish forecasts of Wall Street's sell-side strategists.

So far, the market is almost perfectly tracking Grantham's prediction, which only makes us more nervous about his calls for a crash.

Purgatory Of Low Returns

To be clear, don't mistake Grantham's near-term forecast as him being bullish. He and his GMO colleagues are rather bearish on stocks. GMO's James Montier described the firm's base-case scenario for the next seven years as a "purgatory of low returns."

"On our data, with U.S. large cap equities offering negative returns (-1.5%) except for high quality stocks (+2.2%), with foreign developed and emerging equities overpriced (+3.7%), and with bonds and cash also very unattractive, investors have to twist and turn to find even a semi-respectable portfolio," Grantham noted. "It is a particularly tough process today with nowhere to hide and no very good investments compared to, say, the time around the 2000 bubble when there were several."

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