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Jeremy Grantham has come out and said that the market has formed into “a bubble of epic proportions”. Let’s go over exactly what Grantham thinks the problem is with the current stock market…
Jeremy Grantham is a very well known British investor. And in particular he’s well-known for his market forecasts. He predicted the burst of the 1989 Japanese asset-price bubble. He predicted the technology bubble in late 1997. And he even warned of the developing subprime mortgage and credit bubble in the late 2000’s. So he’s got a pretty good track record.
Now the interesting thing about all of this is, he’s made another big call on the stock market in 2021. He said that the market has formed into a bubble of epic proportions. Here’s his exact words.
He wrote an essay for his investing firm GMO, titled: waiting for the last dance, the hazards of asset allocation in a late stage major bubble. He wrote “the long, long bull market since 2009 has finally matured into a fully-fledged epic bubble. Featuring extreme overvaluation, explosive price increases, frenzied issuance, and hysterically speculative investor behavior, I believe this event will be recorded as one of the great bubbles of financial history, right along with the south sea bubble, 1929 and 2000”.
But this last bit that he said is probably the most important for all of us investors. He continued that “These great bubbles are where fortunes are made and lost. Make no mistake – for the majority of investors today, this could very well be the most important event of your investing lives”.
So what’s going on in the market today & how we choose to deal with it, could determine how rich or how poor we are in the future.
So that’s 3 and a half asset classes that Grantham thinks is overpriced in 2021. First one he mentioned was the bond market. People will pay extraordinary amounts for bonds right now, which is forcing yields to be very low.
The 10 year treasury bond, that’s sitting at basically the lowest it’s ever been in history. It’s currently at 1.2% right now, meaning if you bought a 10-year treasury bond, you could expect a 1.2% return every year. Inflation at the least will be around 2-3% meaning every year, your real returns will be in the negative…
As Jim Grant said “it’s the most overpriced that it’s been in 4000 years”. But the main asset class that Grantham is warning about is the stock market.
If we take a look the S & P 500, which is the general indicator used to measure the USA market as a whole, this is sitting at 4,400 points. That’s more than 2 & half times bigger than what it was in the heights of the great financial crisis, as well as the 2000 technology bubble. In just 12 years what has happened to the market, very few could have predicted…
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DISCLAIMER: It’s important to note that I am not a financial adviser and you should do your own research when picking stocks to invest in. This video was made for educational and entertainment purposes only. Consult your financial adviser. * Some of the links on this webpage are affiliate links. This means at no additional cost to you, we earn a commission if you click through and make a purchase and/or subscribe. This has no impact on my opinions, facts or style of video.