GMO’s Jeremy Grantham says stocks and bonds will “fail to generate inflation-beating returns over the next seven years, but he doesn’t see an imminent crash in share prices,” according to a recent article in The Wall Street Journal.

The article says that Grantham, who predicted bubbles in 2000 and 2007, argues that while current stock valuations are high, they are supported by healthy profit margins. Further, he believes that the Fed’s low interest rate policy “supports share prices by making fixed-income investments less attractive as an alternative to stocks.”

In an interview with WSJ, Grantham offered the following insights:

• Valuations will revert over a 20-year period, but probably not as much as they did prior to 1998.
• About profit margins, Grantham says that while some are due to the brand power of large companies, some are also attributable to the power of corporations to “bully” politicians and regulatory agencies.
• The biggest, most profitable companies—considered “high quality”—are not really cheap anymore, Grantham says. “They are still less expensive than the overall market, but much less so than previously.”
• Capitalism in the U.S., Grantham asserts, “has lost its way. The social contract was previously in good shape,” he said, noting that corporations used to look after employees and CEOS were enjoying increased income along with workers. Now, he says, “the system has gone to hell.”