In his latest article titled – Entering The Superbubble’s Final Act, Jeremy Grantham warns investors to prepare for an epic superbubble finale. Here’s an excerpt from the article:
Previous superbubbles saw a much worse subsequent economic outlook if they combined multiple asset classes: housing and stocks, as in Japan in 1989 or globally in 2006; or if they combined an inflation surge and rate shock with a stock bubble, as in 1973 in the U.S. and elsewhere.
The current superbubble features the most dangerous mix of these factors in modern times: all three major asset classes – housing, stocks, and bonds – were critically historically overvalued at the end of last year. Now we are seeing an inflation surge and rate shock as in the early 1970s as well.
And to make matters worse, we have a commodity and energy surge (as painfully seen in 1972 and in 2007) and these commodity shocks have always cast a long growth-suppressing shadow.
Given all these negative factors, it is unsurprising that consumer and business confidence measures are testing historic lows. And in the tech sector, the leading edge of the U.S. (and global) economy, hiring is slowing, layoffs are rising, and CEOs are increasingly bracing for recession.
Recently, we have seen a bear market rally. It has so far played out exactly in line with its three historical precedents, the bear market rallies that marked the middle phase of deflating superbubbles. If the bear market has already ended, the parallels with the three other U.S. superbubbles – so far so strangely in line – would be completely broken.
This is always possible. Each cycle is different, and each government response is unpredictable. But these few epic events seem to act according to their very own rules, in their own play, which has apparently just paused between the third and final act. If history repeats, the play will once again be a Tragedy. We must hope this time for a minor one.
You can read the entire article here:
Jeremy Grantham: Entering The Superbubble’s Final Act
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