Stocks are in a bubble that’s bound to burst, there’s no imminent risk to dollar dominance, and bitcoin is a tool for criminals and inferior to other assets, Jeremy Grantham said.
The stock market “shows every sign of being just as crazy” as it’s ever been, the GMO cofounder and long-term investment strategist told the Insightful Investor podcast in a recent conversation.
The benchmark S&P 500 index has surged 31% over the past year, and now trades in the top 1% of the Shiller price-to-earnings ratio’s historical range, Grantham said.
“When you start from this level you have a very hard time going up materially,” he warned.
The veteran investor underscored that prolonged bull markets typically begin when unemployment is high, profit margins are depressed, and stock valuations are beaten down.
Current conditions are the polar opposite of that, putting stocks in “double jeopardy” as both profits and valuations may plunge, Grantham said.
The stock market has staged big rallies during boom times a couple of times before, including in 1929 and 1999, but those “ended incredibly badly,” he said.
ChatGPT the ‘snake in the garden party’
Grantham suggested the “Magnificent Seven” stocks that have pulled the market higher could go the same way as the Nifty Fifty, a group of once high-flying companies like Kodak and Polaroid that crashed in the 1970s. Some never recovered.
The market historian said the “superbubble” he spotted in 2021 was heralding “death and destruction,” and was on track to burst entirely if not for the launch of ChatGPT in late 2023.
He described OpenAI’s chatbot as “a snake in the garden party,” given it threw off his prediction and ignited a fresh wave of mania around AI-related stocks.
Grantham also tackled the topic of de-dollarization and whether the dollar might lose its status as the world’s reserve currency.
He highlighted that even after the greenback usurped the British pound, it still took decades for the sterling to fall out of use around the globe: “My guess is it’s not going to be easy to kill off the dollar as the central currency for the world.”
‘Perplexing’ bitcoin
Grantham also took aim at bitcoin, which hit a record high of over $72,000 earlier this month.
“It doesn’t pay you a dividend, and it doesn’t create any value unless you’re a drug dealer — where it’s invaluable — or other bad guys who want to stay off the radar screen,” he said. “It’s perplexing to me why serious countries don’t ban it because it so facilitates lawbreaking.”
Stocks are backed by assets that get cheaper as the stock price goes down, acting as a natural “brake” for any price drop, Grantham said. Bitcoin lacks that, as does gold, but at least the yellow metal has thousands of years behind it and lots of industrial uses, he noted.
“Still, I’m suspicious of it,” Grantham said. “I’m just a hell of a lot more suspicious of bitcoin.”
Grantham may eventually be proven right, but it’s worth pointing out that he’s been sounding the alarm on markets and the economy for years now with very little to show for it.
