Be prepared for a future of inflation, slowed growth, and labor shortages, well-known value investor Jeremy Grantham told Bloomberg in an interview recapped by Yahoo! Finance. Grantham claims the “Goldilocks” era of the last quarter-century is coming to a close, with boundaries looming on things like cheap oil, nickel and copper. “…we’re going to live in a world of bottlenecks and shortages and price spikes,” the 83-year-old co-founder of Boston asset manager GMO predicted.
The current situation is an inevitable confluence of many factors: climate change, increasing scarcity of raw materials, a declining birth rate as baby boomers retire, and geopolitical tensions, Grantham maintains. He considers the market to be in a “super bubble”—only the fourth one in U.S. history—and that a crash is coming soon. His advice? Get out of U.S. stocks entirely, forecasting a 50% drop in the S&P 500 that no amount of intervention from the Fed can prevent. And indeed, his dire forecast was immediately followed by a few days of market volatility.
This current super bubble, Grantham contends, was brought on by the demand for easy money that pushed up asset prices and exacerbated inequality. As humans have pushed the limits of the planet, “[n]ature is beginning to fail,” Grantham said in the interview. “And in the end, if we don’t fix that, we begin to fail as well.”
But Grantham has long been skeptical of stock valuations, and many analysts believe he’s been wrong too many times to be taken seriously. Only one of GMO’s nine equity funds has outperformed the MSCI World Index, making value an expensive approach for clients. But Grantham has been preparing for the worst for at least a year; he shorted the Nasdaq Composite and Russell 2000 indexes as a hedge at his ESG-focused Grantham Foundation as well as personally investing in GMO’s strategy that utilizes shorts to take advantage of the slimming gap between cheap and pricey stocks.
Of course, you can always just not sell, the Yahoo! article quotes Grantham as telling Bloomberg, but you may be waiting a long time to recoup any losses that occur from holding onto stocks during a crash.
