US market: Jeremy Grantham, the co-founder of asset management firm GMO and who has openly expressed doubts about the rally in global equities during the past year, cautioned that the super bubble in the US is ready to burst and due to this Serious financial problems will arise. Grantham has forecast a 45 per cent break from current levels in the US equity market.
US market in the category of super bubble
Grantham wrote in his client note, “At this time last year, it looked like we might have a standard pain (pain) for the economy due to the standard bubble we have here. But over the course of the year, the bubble grew into the category of a super bubble, one of just three in modern times for US equities. The potential pain has increased in this sequence.”
According to Grantham, all the last five super bubbles—in equities and housing in the US and Japan after 1929—have recovered with longer than average and prolonged problems. In other words, when the bubble bursts, prices return to where they started.
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Equity market may break 45 percent
Using this as a reference point, Grantham sees the US equity market breaking 45 per cent from current levels at around 2,500. Grantham insists that for the first time in the US, four asset classes – equities, bonds, housing and commodities – are being seen. Also, there were indications that the super bubble in equities is close to burst.
Bluechip shares break in the suber bubble
Grantham wrote, “One of the last features of the Great Super Bubbles has been the persistent constriction of the market and the unique weakness of speculative stocks, in which many bluechips break when the market moves up. This happened in 1929, in 2000 and is happening now.”
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Noting that the market is limited, Grantham says, there has been an increase in the number of stocks which are declining compared to the stocks that are going strong. This is why, in addition to a 40 percent drop in bitcoin, meme stocks like GameStop, AMC, and a third of Nasdaq stocks are down more than 50 percent, he said.
decline can start at any time
He wrote, “There is no doubt that there has been an increase in the crazy behavior of investors in MIME stocks and EV related stocks, cryptocurrencies and NFTs over the past two and a half years compared to 2000. This phase of the super bubble is over and the fall could start at any time.”
how is vampire phase
He said that the bull market sees him in the ‘vampire’ phase. Grantham writes, “I consider the vampire phase of a bull market to be a period where you throw away everything you have. You damage it with covid, you promise high interest rates and you give it the pain of unpredictable inflation which has always weakened the P/E ratio.”
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