Gloomy Word 'Superbubble' Is Now Being Tossed Around

If the forecast of big-name investor Jeremy Grantham is correct, the US economy—and perhaps your 401k—is in for a world of hurt. The 83-year-old founder of the Boston-based investment fund GMO (who is known for his gloomy forecasts) isn't just warning of a bubble, he's upgraded it to a "superbubble," and he thinks it's about to burst. Coverage:

• The warning: In his assessment last week, headlined "Let the Wild Rumpus Begin," Grantham warned that a superbubble threatens everything from stocks and bonds to real estate and commodities, per MarketWatch. For "the first time in the U.S. we have simultaneous bubbles across all major asset classes," he writes. And adds this: "When pessimism returns to markets, we face the largest potential markdown of perceived wealth in U.S. history."
• Descriptive: “We are in what I think of as the vampire phase of the bull market, where you throw everything you have at it,” Grantham writes. “You stab it with COVID, you shoot it with the end of QE and the promise of higher rates, and you poison it with unexpected inflation ... and still the creature flies.” And "just as you’re beginning to think the thing is completely immortal, it finally, and perhaps a little anticlimactically, keels over and dies,” he adds. Grantham largely blames the Fed and its global counterparts for the predicament, per Insider.
• Context: Last year, "perma-bear" Grantham warned of a "full-fledged epic bubble," and anyone who heeded his advice would have missed out on a profitable run in the stock market, writes John Cassidy at the New Yorker. In fact, Grantham has made plenty of predictions over the last decade "that turned out to be wrong—or very premature." So is Cassidy suggesting we ignore Grantham? Nope.
• Caution: It's possible that Grantham's assessment last year was correct, but just too early, writes Cassidy. "With the Dow having risen roughly five hundred per cent since the last extended bear market ended, in March, 2009, the buy-on-the-dip mentality is still deeply ingrained," he writes. "But stocks don’t go up forever, and the Fed’s U-turn means that the game has changed. This could be a good time to listen to a voice of caution."

• Caution, II: Grantham "isn’t always right, but he is a serious student of markets who called the dotcom and 2006-08 crashes with impressive precision," writes Nils Pratley in the Guardian. "He’s worth listening to. Ukraine aside, the debate he is describing is exactly the one obsessing investors currently. The test of his thesis has been a long time coming."
• What to do? Grantham's advice: "Avoid U.S. equities and emphasize the value stocks of emerging markets and several cheaper developed countries, most notably Japan," he writes. "Speaking personally, I also like some cash for flexibility, some resources for inflation protection, as well as a little gold and silver." And, no, he's not a fan of cryptocurrency.

(More market bubble stories.)