Jeremy Grantham: The Next Crash Will Be Similar To 1929 / 2000

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In this video we explain Jeremy Grantham's opinion on the "fully fledged epic bubble" that is the stock market and why these conditions are similar to 1929 / 2000.

📚 Chapters 📚

00:00 - Grantham's thoughts on the market
01:20 - Signs of a market bubble: OTC trading
02:30 - Signs Of A Market Bubble: Euphoria based investing
02:53 - Free money pumping up the stock market
04:18 - Fiscal & Monetary Policy Adding To The Bubble (a bad recipe).
06:09 - The Stock Market does not reflect reality
08:43 - The FED no longer has the power to prevent the crash

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Jeremy Grantham, he’s a value investor, he’s a student of market bubbles & he’s the chief investment strategist of GMO, the investing firm with over $118 billion of assets under management.

He normally doesn’t do that many interviews, however recently he went on Bloomberg finance with some pretty stern things to say…

The bull market that started in March 2009, the longest bull market in history has matured into a speculative fever of rare proportions.

He said “It is a fully fledged epic bubble”. “Put it this way. When you have reached this level of obvious super enthusiasm, the bubble has always without exception broken in the next few months, not a few years. You can’t maintain this level of near ecstasy it can’t be done, because you’ve put in your last dollar. You are all in. What are you supposed to do beyond that point? You can’t borrow any more money. You can’t take any more risk”. “How do you keep that level of enthusiasm going indefinitely?”.

The answer is you can’t. Just like when you drink alcohol or coffee the high has to turn to a low, and the exact same thing will happen with the market.

You know you’ve got many different signs that point to a bubble. One of those signs that Grantham talks about is the amount of trading going on.

He said “if you want a crazy example (of a sign), & you need crazy by the way that’s the best timing for a bubble top is crazy behavior. You look at the over-the-counter trading. I was a big over the counter trader in a speculative bubble of 1969. So last February it traded about 80 million shares for the month and it worked its way steadily through the year until November, (then) it got to around 380, so it had gone up four times. And then in December it went to 1.15 trillion shares for the month. Having tripled, it then tripled again in a single month! These are spectacular performances!”

So what we’re seeing is more and more traders entering the market looking to make a quick buck. As Grantham said, over 10 times more trades were placed at the end of 2020 compared to the start.

This is a signal of greed. Even more than greed it’s a signal of euphoria slash delusion. Everyone’s making money in the stock market, let’s all join in, let’s all do the same thing, I don’t want to miss out, and this pushes prices higher and higher. But always remember what follows greed, and the “new paradigm”, is denial, then fear, then capitulation.

And one of the things that is causing this euphoria in the market is this free money that everyone seems to be getting. Here’s what Grantham said “the sad truth of a lot of the quote stimulus, is that it didn’t increase capital spending. It didn’t’ increase much in the way of real production, but it flowed a lot of it eventually into the market one way or the other. And I have no doubt some of this new round of stimulus will and if it’s as big as they talk about, this would be a very good making of a top for the market, just of the kind that the history books would enjoy. We will have a few weeks of extra money and a few weeks of putting your last desperate chips into the game and then an even more spectacular bust”.

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