Although we had the direction right last week we thought we could drop to ~2040.
From the Financial Times, August 6, 2015:
A well-known fund manager who foresaw the Japanese crash, the dotcom bubble and the global financial crisis has predicted that markets will be “ripe for a major decline” some time in 2016, potentially triggering government bankruptcies.
FT Alphaville's Opening Quote post, Aug. 7, 2015.Jeremy Grantham , founder and chief investment strategist of GMO, a $118bn investment house based in Boston, expects the stock market to continue to march higher in the coming year, eventually sucking in retail investors and setting up a serious decline around the time of the US elections in late 2016.The famously bearish and often prescient money manager said this could trigger a “very different” type of crisis, because many governments had become considerably more indebted and much of the liabilities had shifted to the balance sheets of central banks.
Given that central banks were able to create money to recapitalise themselves, this “could be a crisis we could weather”, Mr Grantham said. “If not, then we’re talking the 1930s, where you have a chain-link of government defaults.”
Unlike many asset managers or analysts, Mr Grantham does not fret greatly over the impact of the Federal Reserve lifting interest rates for the first time in almost a decade this year. He points out that the US central bank lifted interest rates 13 times between 2004 and 2006 without troubling the ebullience of the time.
“And now we are behaving hysterically at the prospect of just one? It’s a bit of a joke, really,” he said. “We might have a wobbly few weeks when they do move, but I’m sure the Fed will stroke us like you wouldn’t believe and the markets will settle down, and most probably go to a new high.”
However, this will draw in retail investors who for the most part have stayed on the sidelines of the great bull market since 2009. That could push the S&P 500 into valuations that are two standard deviations away from the long-term norm by the time of the US elections, which Mr Grantham classified as a bubble....MORE
We've been following Mr. Grantham's prognostications for quite a while, most recently in June 25's "Jeremy Grantham at Morningstar's Investment Conference: We're Closing In On Bubble Territory":
S&P 500 2108.58; all time high 2134.72.
We would not be at all surprised by a decline into early August but, contra Carl Icahn, don't think we've seen the top yet.
In a series of posts I called Grantham Through the Looking Glass we tracked the usually dour Mr. G:
...Previously on Grantham through the looking glass:Mar. 15, 2014
Barron's Interview: "Jeremy Grantham: Learning to Live With a Stock Bubble " (Quick, Hire a Kid!)July 18, 2014Here's the latest from Morningstar:
Jeremy Grantham: M&A Boom Poised For a ‘Veritable Explosion’
July 19, 2014
If You Want to Make Serious Money Listen to GMO's Jeremy Grantham Right Now
Oct. 24, 2014
Revisiting Jeremy Grantham's Bullish 2 Year Outlook
Nov. 18, 2014
"Jeremy Grantham's Bubble Watch Update: 'S&P To 2250 Before It Crashes'"
Nov. 19, 2014
More Jeremy Grantham: "Calling the Next Market Top"
Grantham: No Bubble, Yet......HT: Institutional Imperative
And, because we know you're curious:
Feb 2010
"Grantham’s ‘Horrifically Early’ Calls Challenge GMO"
March 2014
How Good Is Jeremy Grantham's Forecasting Record?
His strong pessimism drives GMO managed funds toward the most stable (large capitalization) value stocks, and these funds have performed fairly well (reflecting perhaps a value premium rather than market timing).
