During his recent interview with WealthTrack, Jeremy Grantham explained why there is a 70% chance of a market crash. Here’s an excerpt from the interview:
Grantham: As you know I’m only interested in the really great bubbles like 1929, 2000, and 2021 are the three senior bubbles in U.S stock market. We have checked off pretty well every one of the boxes.
They all three followed long economic upswings, very strong bull market in the stock market, very strong earnings, almost perfect economic financial conditions by the top of the cycle. They all had a sharp leg down.
They’ve had pretty good rallies in ’29 they had a 42% rally. In 2001 they had a 25% rally. And I believe the S&P had about a 20% rally a week ago. And the Nasdaq has done considerably better. So all present and correct.
I’m a little bit disturbed by the emergence of the kind of mini-bubble in artificial intelligence trying to work out will that be quick enough and strong enough to alter the final stage of this bubble. Which is always the longest and most difficult one to predict, because it depends on the fundamentals.
How quickly and how long will the economy go down? How low will profit margins fall? They have fallen a decent bit already, but they could do a lot worse. And how badly other economic variables will be. The trouble within global trade, the trouble with China, the trouble with the war. And how will that play out?
Very difficult to tell. I think that history says if you handle the economy very badly you might end up like 1929. If you handle it pretty well, like 2000, you still get a respectable recession, one that will do the job and bring the market down. 2001 was about as easy a recession as you will ever get. A genteel recession. And still the Nasdaq came down 82%.
Host: Are we in a bear market rally? Is that what’s going on? So therefore this is a continuation of the bursting of the bubbles that you had warned about?
Grantham: I would say so. However my probabilities that had climbed to 85% likely, which is ridiculously high. I was very confident that this was deflating in the typical way.
And that probability is probably backed off to about 70%, which is still higher than a lot of people ever get to.
You can watch the entire discussion here:
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