Fed policies, “speedy stimulus” and success with Covid-19 vaccinations have led to the “biggest U.S. fantasy trip of all time” for investors, says GMO co-founder Jeremy Grantham. This according to a recent article in Financial Advisor magazine.
Grantham describes the market’s rebound since its March 2020 low as “a short hit and a sharp recovery” but argues that currently there are numerous bubble signals including high debt and increased trading volume, with OTC penny stock trading at record levels. “Checking all the necessary boxes of a speculative peak,” says Grantham, “the U.S. market was entitled historically to start unraveling any time after January of this year.”
According to Grantham, given that all major asset prices are overpriced, and interest rates are extremely low, the traditional 60/40 portfolio allocation is “particularly dangerous.” Instead, he reportedly recommends combining value stocks and emerging-market equities, which he considers cheap and offering the potential of 10%-20% returns annually. He predicts that the S&P 500 will do poorly by comparison and Bitcoin, he says, should be “avoided completely as it adds nothing to GDP,” describing it as the asset that most closely resembles the Nasdaq at the peak of the dot-com bubble.
Regarding the broader market, Grantham notes declines in the leading growth stocks. Meme investing, which he defines as “the idea that something is worth investing in, or rather gambling on, simply because it is funny” is “a totally nihilistic parody of actual investing. This is it guys, the biggest U.S. fantasy trip of all time.”
Grantham emphasized the need for green investing, acknowledging bubble signals in ESG strategies but noting they are in line with those of other assets. Government support and corporate recognition of such strategies, he said, would make them a solid long-term bet. He is optimistic on electric vehicles, which have reportedly returned as much as 200% since March of last year.
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