Stock-market legend sees few weeks of ‘putting your last, desperate chips into the game’—then pop

by Eren Rosa
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‘We will have a few weeks of extra money and a few weeks of putting your last, desperate chips into the game, and then an even more spectacular bust…When you have reached this level of obvious super-enthusiasm, the bubble has always, without exception, broken in the next few months, not a few years.

— Jeremy Gratham

That is the latest from Jeremy Grantham, co-founder and chief investment strategist at Boston-based money manager Grantham, Mayo, Van Otterloo & Co., offering up a stark warning to speculators driving the stock market to new heights amid the greatest pandemic of the past century.

In an interview with Bloomberg TV’s “Front Row,” the storied investor, who is often credited with several prescient market calls over the past two decades, insists that a steady rise in stocks, fostered by free money from the Federal Reserve and the government’s fiscal stimulus, can’t continue without consequences.

“If you think you live in a world where output doesn’t matter and you can just create paper, sooner or later you’re going to do the impossible, and that is bring back inflation,” Grantham warned.

This is far from the first word of caution that Grantham has sounded in recent weeks but he’s now pointing to the $1.9 trillion coronavirus relief package proposed by newly inaugurated U.S. President Joe Biden as further reason for an eventual bursting of the bubble.

Grantham is worth paying attention to due to his prescient calls over the years. He said that stocks were overvalued in 2000 and again in 2007, anticipating those market downturns, The Wall Street Journal reports. Grantham also signaled that elements of the financial market had become unmoored from reality leading up to the 2008-09 financial crisis.

However, GMO badly trailed the S&P 500 index SPX, -0.30% in 2020, according to a report by Bloomberg News on Tuesday.

Back in June, one of GMO’s key investment officers, Ben Inker, told investors that it was time to sell stocks, in a client letter, cited by Bloomberg. Inker suggested to Bloomberg that investing is no easy game.

U.S. equities, meanwhile, have defied Grantham’s bearish prognostications and gravity. The Nasdaq Composite Index COMP, +0.09%, the Dow Jones Industrial Average DJIA, -0.57% and the S&P 500 index are all trading near historical peaks.

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