Friday, 2 April 2021

When Is the Last Dance?


Most of the time major asset classes are reasonably priced. So said Jeremy Grantham in a CNBC interview recently.

The real trouble with asset allocation is that asset prices tend to move away from fair value. When price rises are very rapid, impatience is followed by anxiety. Overvaluation is a necessary but not sufficient condition for a “bubble burst”. The single most dependable feature of late stages of great bubbles is crazy investor behaviour.

The “Buffett Indicator”, total market capitalization to GDP, is well above its Year 2000 high. The Shiller CAPE is above 30. Even with a slowdown and an uncertain recovery, the market is in unprecedented territory. The mantra of late 2020 was the low interest rate will prevent decline in asset prices. So, when is the last dance or when will the music stop?

The Buffett Indicator at All-Time Highs (as of 18/3/2021)

Shiller PE Ratio as of 22/3/2021

Even with hindsight and sophisticated modelling, it is difficult to pin the bubble. A guess is late 2021 or early 2022. Why? When recovery moves strongly, inflation rears its head and the Fed begins to move interest rates upward, then we may see the end of the latest dance. Intensity and enthusiasm of bulls, acceleration of its final lag are other features of the end. Meantime, you will have bullish advice in a bubble.  Beware!

Value stocks (in the U.S.) have had their worst-over relative decade, followed by worst-ever year in 2020. Value and Emerging Market equities are Jeremy Grantham’s choices for the immediate future.



1.     Jeremy Grantham, Waiting For The Last Dance

2.     Buffett Indicator, 18 March 2021,

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