The Insights of Jeremy Grantham on Stocks, Real Estate, AI Bubble, the Fed, and Economic Hardship

  • Jeremy Grantham released cautions about equities, property, and the economy this week.
  • The influential investor anticipated the AI bubble would burst, bringing down the stock market with it.
  • Grantham criticized the Fed for producing asset bubbles, and signaled climate change as a crucial concern.
  • Jeremy Grantham sounded the alarm on a sprawling real estate bubble, cautioned that US stocks are heavily overvalued and could disappoint for the next decade, and declared the booming American economy is detached from reality.

    The GMO cofounder and long-term investment strategist predicted the AI frenzy would fizzle and take down the stock market with it.

    The market historian also tore into the Federal Reserve for repeatedly inflating asset bubbles, and reeled off climate change, dwindling resources, and population decline as critical long-term threats.

    Grantham made the striking comments at the Exchange conference in Miami this week. Here are his 14 best quotes from the event, lightly edited for length and clarity:

    1. “The surprising thing about this entire event is how US it is. In real estate, everything everywhere is in a dangerous bubble. But in equities, for some reason, they left out the rest of the world.”

    2. “There has never been a sustained bull market starting from a Shiller price-to-earnings ratio of 33 — it’s in the top 2% of the historical range. There’s never been a sustained rally starting from full employment. If you want to have a long, impressive rally, you want to see profit margins down, unemployment up, and PEs low.”

    3. “The higher the price, the lower the return. Starting with very high prices is pretty much a guarantee that for the next 10 or 15 years, you will be disappointed. You never do well for a long time when you start when everything is rosy. That seems pretty obvious, doesn’t it guys?”

    ‘Shovels in the gold rush’

    4. “There’s never been a situation where you had a bubble of considerable dimensions — one of the three great bubbles in American history — where it’s been interrupted by a secondary, very focused bubble of a different kind — of artificial intelligence.”

    5. “We were unraveling quite nicely by historical standards, until that infamous day when they came out with ChatGPT. AI completely scrambled what was a relatively well-behaved event, and set off initially 10 months of amazing rally by a couple of handfuls of stocks. The rest of the market, with its jaw hanging loose, watched as these guys went up 50%, 60%, 70%. Then 10, or 11 weeks ago, the rest of the market gave up waiting patiently, and joined in.”

    6. “Everyone is ordering these darn chips to facilitate AI. They don’t know what they’re going to use the chips for yet. It’s like selling shovels in the gold rush, and the shovel sellers are completely freaking out.”

    7. “The bad news for a bear is I can’t easily dismiss artificial intelligence. What I think will happen is we’ll have that euphoria, like we had in railroads and the internet, and then we will have the setback that followed every single case.”

    ‘Living on air’

    8. “We’re way over our skis. When that subsidiary bubble breaks, will it take the air out of the rest of the market, who will then do maybe what they would have done anyway? That’s my bet.”

    9. “Usually rallies end when you’ve had a long run — check; full employment — check. We’re seeing the conditions when these things end.”

    10. “The same with the economy, it’s been living on air. How on earth can we have employment numbers that are three times the long-term trend in the population, in the labor force? It is quite remarkable, and the rest of the world is not participating.”

    11. “Quality is the longest market inefficiency in history. AAA stocks don’t go bust as much, they do better in bear markets, and yet they have returned on average an extra half a percentage point annually for almost 100 years.”

    ‘Non-stop catastrophes’

    12. “My personal feeling on the Fed has always been that they get almost nothing right.”

    (Grantham blasted Alan Greenspan, the Fed’s chair during the dot-com bubble, as the “biggest nitwit of all” for inflating the prices of stocks and housing with loose monetary policy. He slammed Greenspan’s successor, Ben Bernanke, for blowing up the mid-2000s housing bubble in the same way.)

    13. “Both resources and climate change have just been smashed; they are incredibly cheap. They are really long-term interesting, but volatile and hair-raising groups, both of them.”

    14. “We are just having non-stop catastrophes. Climate change is damaging our ability to generate wealth, to grow reasonably priced food. We’re running out of resources at a time of climate change, growing toxicity, and problems with health, but above all fertility.”

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