Stock bubble still deflates amid Fed ‘Horror Show’

Matthew Lloyd/Getty Images for ReSource 2012

  • The stock bubble is still deflating and the market won’t bottom until 2024, Jeremy Grantham said.
  • The legendary investor blasted the Fed’s monetary policy as a 36-year-long “horror show.”
  • He predicted mild pain in the coming year for investors and warned of a fall in stocks around April.

The stock market bubble is still deflating, and stocks will finally bottom out amid the Federal Reserve’s monetary policy “horror show” in late 2024, according to legendary investor Jeremy Grantham.

In a recent interview on Bloomberg’s What Goes Up podcast, the GMO co-founder reiterated his view that stocks were in a speculative bubble and about to pop, thanks to the end of ultra-low interest rates and abundant market liquidity that sent stocks to dizzying heights during the pandemic.

Grantham also blasted the Fed’s monetary policy in the years since former Alan Greenspan took over as chairman of the central bank in 1987, calling its influence on the US economy a 36-year “horror show” that helped create overpriced assets in the later year.

“They have engaged in policies that drive up asset prices, other things being equal, and create spectacular overpricing bubbles. Then they burst, because that’s what bubbles are supposed to do. They simply burst their extreme overpricing and we pay a very tough price,” Grantham said.

Although Grantham previously predicted that stocks would fall by 20% this year, he noted that the bubbles could take several years to fully pop, and predicted that the market would bottom out by the end of next year. At worst, that could mean the S&P 500 falls 50%, he said earlier — and that means investors shouldn’t be fooled by intermittent gains in the market.

“My guess was this was going to be a long one,” Grantham said. “That’s what happens in the big bubbles. They have wonderful rallies. They can have spectacular January rallies,” he added, referring to the strong gains in stocks announced in 2023. That’s similar to the rallies that was seen before the dot-com burst. bubble when the Nasdaq Composite fell 40% in 2001. “And this has followed 2000 perfectly,” he warned.

Meanwhile, Grantham saw mild pain in the coming year for investors. Stocks should be back in the “meat grinder” phase of the market, he said, because of typical patterns seen in an election year and presidential cycles. But the losses won’t be devastating compared to where the market was eventually tied.

“I think there’s a bit of a chance this year it won’t drop that much,” Grantham said. “My guess for April is that it will stay up. I know that unexpected bears, that Morgan Stanley and so on are talking about a fairly immediate drop, and that could occur, but my guess is that it’s hard to get this market really down , before we get rid of April.”

Other market commentators have warned that the crash will indeed come this year. “Dr. Doom” economist Nouriel Roubini believes stocks could plunge 30% as the US tips into recession, and market guru Larry McDonald said stocks could plunge as much as 30% over the next 60 days as Rising interest rates will continue to hammer the market.

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