Jeremy Grantham’s Prediction of the S&P Crash!

 Jeremy Grantham, the legendary investor who has predicted the last three market bubbles, foresees the S&P 500 crashing almost 50%. 

The market historian said the benchmark index may slip to around 2,500 - a downside of roughly 48% from January's peak. This was in a recent Bloomberg interview.

In roughly 4,000 words, Grantham laid out the reasons why he is confident the latest "super bubble" will pop, just as its predecessors did in 1929, 2000, and 2008. For example, he noted the bull market's acceleration in 2020 up until February 2021, when the Nasdaq rose an astonishing 58% from 2019. He also touched on an occurrence that happened in 1929 and 2000 that is replaying today: the underperformance of speculative stocks as the blue chips rise. 

And the "touchy-feely characteristic of crazy investor behaviour" is indicative of a late-stage bubble, the 83-year-old added. Last year saw the rapid ascent of meme stocks such as GameStop and AMC in addition to crypto currencies like dogecoin as well as non-fungible tokens.

He compared this bubble to Japan in the 1980s, which saw two asset bubbles — real estate and stocks — together. The US, in contrast, has three and a half major asset classes — stocks, bonds, real estate, and commodities — bubbling simultaneously for the first time. And if valuations across all of these asset classes return even two-thirds of the way back to historical norms, total wealth losses will be on the order of $35 trillion in the US alone.

His advice to investors? 

Avoid US equities, invest in value stocks of emerging markets and several cheaper developed countries such as Japan. Plus, have some cash for flexibility, as well as a little gold and silver.

And as for crypto, that asset class leaves him "increasingly feeling like the boy watching the naked emperor passing in procession”.

What about Malaysia?

Jeremy Grantham did not speak about Malaysia, except to suggest emerging markets are safer than U.S. equities. But there will be an impact on the Bursa if U.S. markets crash. How much, is a good guess! In addition, when OPR rises to ameliorate inflation, markets are impacted. Value stocks will always be superior to growth stocks in such an environment.

Good luck in investing in the Year of the Tiger!

References:

Legendary investor Jeremy Grantham predicts S&P 500 will crash 50% after 4th US “superbubble” in the past century pops (https://markets.businessinsider.com)

Jeremy Grantham doubles down on crash call, says selloff has started, Erik Schatzker, January 21, 2022 (https://bloomberg.com)