Jeremy Grantham, co-founder of money manager GMO, has been saying for several years that U.S. stocks are in a bubble, and he’s not changing his tune now.
The 83-year-old investor, who correctly predicted the stock bubbles of 2000 and 2007, says that now, it’s not just stocks that are in a bubble. So are bonds, real estate and commodities.
As for stocks, “we have the most exuberant, ecstatic, even crazy investor behavior in the history of the U.S. stock market,” Grantham wrote in a commentary.
“The U.S. market today has, in my opinion, the greatest buy-in ever to the idea that stocks only go up, which is surely the real essence of a bubble.”
As for real estate, “we are indeed participating in the broadest and most extreme global real estate bubble in history,” Grantham said.
“Today houses in the U.S. are at the highest multiple of family income ever, after a record 20% gain last year, ahead even of the disastrous housing bubble of 2006.” To be sure, that multiple is even higher in Canada, Australia, the U.K., and “especially” China, Grantham said.
When it comes to fixed income, “we have the highest-priced bond markets in the U.S. and most other countries around the world, and the lowest rates, of course, that go with them, that human history has ever seen,” Grantham said.
On the commodities front, “we have broadly overpriced, or above trend, commodities including oil and most of the important metals,” Grantham said.
A combination of deflating asset prices and still-rising commodity prices could produce the “ultimate pincer attack on the economy and is all but guaranteed to lead to major economic pain,” Grantham said.