Legendary investor Jeremy Grantham says the stock market right now is in the 4th ‘Real McCoy’ bubble of his career

  • Renowned investor Jeremy Grantham told CNBC on Wednesday that the US stock market seems to be forming a ‘Real McCoy’ bubble that may end up hurting investors.
  • Grantham, said this may be the fourth and most “crazy” major market bubble in his long career, referring to the strong rebound in US stocks from coronavirus-induced lows in March.
  • The investing legend is notable for calling out three previous market bubbles: Japan in 1989, the tech bubble in 2000, and the US housing crash in 2008.
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A stock market legend, Jeremy Grantham, seems certain that the US stock market’s strong recovery from its historic lows in March will end up in pain for investors.

“My confidence is rising quite rapidly that this is, in fact, becoming the fourth real McCoy bubble of my investment career,” he said in a CNBC “Closing Bell” interview aired on Wednesday.

“The great bubbles can go on a long time and inflict a lot of pain but at least I think we know now that we’re in one.”

Grantham presented an alarming scenario in which uncontrolled day traders who are out of work and into heavy market speculation around bankrupt companies, including car-rental firm Hertz, may just be the most “crazy” market he’s seen in his career.

“It is a rally without precedence,” he told CNBC’s anchor Wilfred Frost, noting that the market rebound clashes with other harsh economic realities including a low point for health, unemployment numbers, and a rising growth of bankruptcies.

US stocks have been rallying in the past week despite investor fears over a second coronavirus wave and rising geopolitical tensions.

But a steady flow of government stimulus, that Grantham called a “favourable environment” for speculative investors, seems to have put a rocket under stocks and kept all major US stock markets climbing, with major US indexes up more than a third from their March lows.

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On investor exposure to US equities, Grantham said: “I think a good number now is zero and less than zero might not be a bad idea if you can stand that.”

Grantham, a co-founder and chief investment strategist of Boston-based asset management firm GMO, is noteworthy for his accurate predictions related to three major prior market bubbles.

Grantham called Japan’s asset price bubble in 1989, the dot-com bubble in 2000, and the housing crisis of 2008.

In anticipation of those market downturns, he warned that stocks were overvalued both in 2000 and 2007, according to the Wall Street Journal.

Back then, he also mentioned how the relationship between home prices and income had become removed from reality, and that at least one large financial institution would fail.

The subsequent 2008 financial crisis proved his predictions right.

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