Jeremy Grantham, founder of GMO, the asset management firm known as a “value investing guru,” recently warned that U.S. stocks were already in an “epic bubble” and that the new U.S. President Joe Biden‘s economic recovery plan would push the bubble to even more dangerous heights, followed by an inevitable crash that would be as bad as the Wall Street crash of 1929 or comparable to the bursting of the dot-com bubble in 2000.
Graham recently interviewed by Bloomberg warned; “the influx of money will continue for a few more weeks, you still have a few weeks to put your last, afraid to step into the game, followed by a spectacular crash. When the market reaches this level of hyper enthusiasm, the bubble always bursts within months, not years, without fail.
In an interview on CNBC on Thursday, Graham said: “Retail investors are becoming very active… They’re borrowing money and trading more stocks. He noted that since February last year, the number of over-the-counter (OTC) shares jumped to 280 million in November and tripled to 1.15 trillion in December.
Retail investors are pouring all their cash into the market, and we’ve rarely seen them this excited,” Graham said. In particular, he pointed to the recent rise in Bitcoin and the dramatic growth of special purpose acquisition companies (SPACs).
Graham warned that there has never been a mega bull market that has fallen less than 50% after a bubble burst. He also believes that the catalyst that triggers a stock market crash is difficult to predict.
Assuming people are lucky enough to get a second dose of the vaccine, it will continue to drive the stock market bubble. However, the bubble could still burst at some point and hit investors before the Epidemic improves significantly everywhere,” he said. He said.
“Emerging markets are relatively reasonably priced compared to the overpriced U.S. market,” he said. Although emerging markets may fall along with U.S. stocks, the crash will not be as severe because they are cheaper, Graham said.
Compared with U.S. markets, Graham prefers emerging market assets, and is more interested in cash and U.S. venture capital (Venture Capital).
Many investors believe that in view of the transformative technology, new business models of growth potential, the current valuation of U.S. stocks at a reasonable level, but Graham believes that this argument is unrealistic.
Graham also refuted the current popular theory that the Federal Reserve can cushion, or even reverse, the market decline by buying bonds, thereby injecting more liquidity into the financial markets, saying that “at a Time when interest rates are at historic lows, banks can take out not much to throw on the table, can they?
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