Jeremy Grantham: the ‘Great Crash’ is about to repeat itself

By: Wajeeh Khan
Wajeeh Khan
Wajeeh is an active follower of world affairs, technology, an avid reader, and loves to play table tennis in… read more.
on Jan 21, 2022
  • The benchmark S&P 500 index has lost more than 7.0% in January.
  • Jeremy Grantham says the index could plummet to 2,500 level.
  • The billionaire investor is convinced U.S. stocks are in a "superbubble".

The S&P 500 index has lost more than 7.0% this month, but billionaire investor Jeremy Grantham warns it’s just a trailer of what’s about to hit in the not-so-distant future.

Grantham sees a downside to 2,500 level

In an interview on Bloomberg Front Row, Grantham said the benchmark could plummet to 2,500, which represents a 42% downside from here because the U.S. stocks are in a “superbubble”. He added:

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I wasn’t quite as certain about this bubble a year ago as I had been about the tech bubble of 2000, or as I had been in Japan, or as I had been in the housing bubble of 2007. I felt highly likely, but perhaps not nearly certain. Today, I feel it is just about nearly certain.

The co-founder of the asset management company, GMO, also predicted that an intervention from the U.S. Fed will fail to offset the descent. In fact, the superbubble, he added, is a result of poor monetary policy over the past two and a half-decade.

Is there evidence that supports his dovish outlook?

Grantham sees the underperformance of Russell 2000 in 2021, a sharp decline in Cathie Wood’s Ark Innovation ETF, and the meme stock frenzy as indications that the superbubble is about to burst.

This checklist for a superbubble running through its phases is now complete, and the wild rumpus can begin at any time. When pessimism returns to markets, we face the largest potential markdown of perceived wealth in U.S history.

According to him, the upcoming crash could be similar to the Great Crash of 1929 or the collapse of stocks and real estate in Japan in the late 1980s. His outlook is starkly different from Michael Sheldon’s, who is still constructive on the stock market for 2022.

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