Jeremy Grantham is the co-founder and chief investment strategist at Boston-based money manager Grantham, Mayo, Van Otterloo & Co. He has just said, “We will have a few weeks of extra money and a few weeks of putting your last, desperate chips into the game, and then an even more spectacular bust…When you have reached this level of obvious super-enthusiasm, the bubble has always, without exception, broken in the next few months, not a few years.” Grantham made the dire prediction for when the stock market will crash during an interview with Bloomberg TV’s “Front Row.”
The renowned investor has received credit for several prescient market calls over the past two decades. Free money from the Federal Reserve and the government’s fiscal stimulus is fostering a steady rise in stocks. Grantham insists that it cannot continue without consequences or a stock market crash.
“If you think you live in a world where output doesn’t matter and you can just create paper, sooner or later you’re going to do the impossible, and that is bring back inflation,” Grantham warned.
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This is far from the first word of caution that Grantham has sounded in recent weeks. However, he’s now pointing to the $1.9 trillion coronavirus relief package proposed by newly inaugurated U.S. President Joe Biden as a further reason for an eventual bursting of the bubble.
Grantham’s words matter. He has been remarkably prescient about market shifts in recent years. He said that stocks were overvalued in 2000 and again in 2007, anticipating those market downturns. Grantham also signaled elements of the financial market became unmoored from reality leading up to the 2008-2009 financial crisis.