Calling a Super Bubble: Front Row With Jeremy Grantham

[bucolic_frolic]

No holes barred interview, at times highly critical of Greenspan, Bernanke, Yellin, Powell, and with a long term view of markets. A privilege that he gives such broad ranged interviews about once a year.

[progree]

1. This is starting to sound like the Economy Group - where they've been screeching bubble bubble since

Last edited Sun Jan 30, 2022, 12:46 AM - Edit history (1)

at least before 2014. And no doubt, like a broken clock, they are inevitably right, there will be a market crash, some day, some year. We just don't know when. And how many market doublings will we miss out of for fear of one TEMPORARY halving?

Jeremy Grantham has been predicting epic market crashes for a decade. Here's why he could be wrong again, Henry Roberson, Business Insider, 1/26/22

Legendary investor Jeremy Grantham has been the talk of Wall Street this week after saying an epic "superbubble" in markets is about to implode, just as stocks started tanking.

Yet Grantham has been issuing similar warnings for years, during which time markets have soared.

The founder of investment company GMO said in November 2010 that he thought the Fed was creating a bubble and that stocks could "crack" in 2011 or 2012. Since then, S&P 500 has risen more than 260% ((that's a 3.60-fold increase, a TEMPORARY halving of that would leave us with a 1.80-fold increase at the bottom -Progree. Late late edit: Important clarification: the 3.60-fold increase doesn't include reinvested dividends. With reinvested dividends, it's a 4.55-fold increase over 11.20 years, which is a 14.49% annualized average return. A TEMPORARY halving would take it down to a 2.28 fold increase -- a 7.6% annualized average return at the bottom. End Late Edit -Progree )).

He said in January 2018 that "we are currently showing signs of entering the blow-off." The S&P 500 has since rallied 60%.

Grantham repeated his bubble warnings in June 2020 and in January 2021. Last week, he said the S&P 500 is likely to plunge almost 50%.

More: https://www.msn.com/en-us/money/markets/jeremy-grantham-has-been-predicting-epic-market-crashes-for-a-decade-here-s-why-he-could-be-wrong-again/ar-AATauF7?ocid=msedgdhp&pc=U531

Though admittedly I got caught up in the bubble bubble bubble panic early last December:

Word to the wise: the crash is coming, get out of the stock market now, 12/2/21 ⚠ 👀 😱
https://www.democraticunderground.com/11213498


As for a "long-term view of markets", well, this is my long-term view

I Imgur'd this graph from Yahoo Finance at near the bottom of the Covid crash. I try hard to keep the "long-term view of markets" in mind. Those were some mighty frightful crashes. The thing is, after several doublings, a 50% "crash" just gets rid of one of those doublings.



In the above graph, the S&P 500's last point is 2305. It closed today, Friday 1/28/22, at 4432, 1.92 fold higher, another tick-mark to add to the graph. Almost the same vertical distance as between the 884 and 1684 points (its on a logarithmic scale where a doubling, for example, or any X percent increase, is the same vertical distance throughout the date range). The 4432 point would be at about where the bottom of the box that says "Sign up now: E*TRADE" is.

Note also this graph is just the price change. It ignores dividends. It would be several times higher if dividends were considered and reinvested.

Here is the S&P 500 with dividends reinvested since 1928: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html
For $100 invested at the start of 1928. it went to $762,000 in 2021, a 7,620-fold increase

[bucolic_frolic]

2. You make a valid point

We have more than 100 years of market data, maybe even 140 though early indexes were primitive. There have been periods of advance, and great crashes, and periods of decline. Participating in the first instance makes money, avoiding the last two conserves capital. The last 40 years of technological innovation, money printing, and deregulation have provided growth, crashes, and steady rebounds. Nonetheless there have been lost decades: following the 1929 crash, the consolidation of corporate growth/war/OPEC from 1968-1982, the 1987 crash, the dot com crash, the housing bubble/Great Recession crash. Crashes and declines are periods of tight money involving monetary contraction, debt liquidation, and often stagflation. Grantham's world view and thesis may well have fiscal sanity as part of its foundation. Liquidity does juice growth if you can tolerate inflation's erosion of the value of the currency, and we're about to find out. Powell has removed "transitory" from his prognosis.

[progree]

3. All's I know is I'd be a lot poorer if I had listened to the "fiscal sanity" permabears

like Grantham all along. That link at the bottom shows also what if the money had been invested in T-bills and bonds, a refuge for the "fiscally sane" and compares to the S&P 500.

http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html

Like the graph, it is inclusive of all the great and minor crashes, those weren't left out.

I don't know anyone who is been able to consistently time the market, so I don't know when to "make money" and when to "conserve capital". My sources have been resolute: don't try to time the market, maintain one's target allocation.

I remember a financial seminar I went to in the early 80's, and one handout was a list of about 20 scary reasons not to invest. As an illustration that the doom-and-gloomers and perma-bears and the "fiscally sane" urging "caution" can always point to dozens of things wrong with the world situation, fiscal policy, the markets, you name it. The "death of equities" was a popular theme back then.

Oh, by the way, that was a period of high (though declining) inflation. Also the start of the greatest bull market in history.

[bucolic_frolic]

4. Investing at the top is the worst of all strategies

and decades of data identifies periods of slow, no, or declining markets. Avoiding the worst markets is a matter of very few decisions.

The S&P INDEX graph you post is essentially 3 periods of sideways movement, 1929-1956, 1968-1982, and 2000-2014, interspersed with 3 periods of sharp upward advances, 1956-1968, 1982-2000, and 2015-2020.

So timing becomes a matter of probabilities. After a period of sharp advance, markets pause or go down for awhile. After periods of sideways movement, markets go up for awhile. Grantham plays a game of probability, and eventually his strategy pays off. It's like clockwork. The resource depletion he cites will have challenges, and may well be a component of the next period of, guess what, sideways movement.

[progree]

5. Yes, you've mentioned that there have been long and flat down periods, and I totally agree

Nothing that I've written, none of the graphs or tables that I have shown have left those out.

The trouble is I don't know when the top of the market is. I don't know when the bottom of the market is. I know if I had listened to "fiscally sane" Grantham in 2010, I would have missed out on a 3.6 fold increase (and that doesn't include dividends). For fear of a TEMPORARY halving.

Well, in November 2010 when he said stocks would "crack" in 2011 or 2012, I looked at the Vanguard S&P 500's index fund, VFINX. On November 15, 2010 it was 89.92 when adjusted for dividends. Now 409.32. That's a 4.55-fold increase over 11.20 years, which is a 14.49% annualized average return.
https://finance.yahoo.com/quote/VFINX/history?period1=1288569600&period2=1291075200&interval=1d&filter=history&frequency=1d&includeAdjustedClose=true

I addressed the issue of investing at the very worst time, at the very top of the housing bubble market in this post https://www.democraticunderground.com/11213498

A lot more fun than "conserving capital" in 3-4% bond funds.

EDIT: Just to be clear again. I am NOT advocating investing at the top of the market. YES YES YES, its the worst possible timing. But even with this worst possible timing, it still did better than bonds over the long run.

If you can forecast market tops and bottoms, that is absolutely great Maybe you can share with your fellow progressives how to do it so we can contribute more to worthwhile candidates and causes, and live better lives too.

[bucolic_frolic]

6. Well we won't agree on anything, and I think you are ignoring the S&P index chart

Draw boxes around the sideways period makes it a lot clearer. But I wish you well.

Personally I time markets based on probabilities, but mostly hedge small bits along the way. Hedges pay off whether things go up, or go down. Grantham is not simply using a on-off invest or cash binary strategy, he's invested in specific ideas along the way. When a market advance is long in the tooth, it can be wise to rebalance and beware that trends do revert to the mean.

[progree]

8. "I think you are ignoring the S&P index chart" LOL

"Draw boxes around the sideways period makes it a lot clearer"

I don't know how many times, over and over and over again that I've acknowledged the flat periods and the crashes. Beginning with post#1:

Those were some mighty frightful crashes. The thing is, after several doublings, a 50% "crash" just gets rid of one of those doublings.

As for hedges, no, those don't always work. A hedge either works or fails. Can you tell me of a hedge that works both ways? If there was such a "hedge" I'd be doing nothing but investing in hedges.

[progree]

7. "and eventually his strategy pays off. "

Really?

[bucolic_frolic]

9. I've had enough abuse from you on this subject

I have shown how to increase the odds of better returns by paying attention to periods of sideways market movement as opposed to advances. It's not a science, it's a world of probabilities. When the odds of reversion to the mean increases, one decreases exposure or diversifies to a counter trend vehicle. I personally pay heed to VERTICAL charts in three-bar time periods, candlestick topping and bottoming tails, and repetitive returns to the same chart levels indicating support/resistance. It's straight from candlestick technical analysis. Lifelong learning does not deserve ridicule and derision.

[progree]

10. "I think you are ignoring the S&P index chart. Draw boxes around the sideways period makes it

a lot clearer" (from #6)

From #9: "Lifelong learning does not deserve ridicule and derision."

Sounds like ridicule and derision to me saying I can't read a friggin graph well enough to see the flat and down periods.

[PoindexterOglethorpe]

11. Trying to time the market is truly a fool's game.

I have been investing since about 1979, and over time I've done quite well. I don't try to time the market, I mostly buy and hold.

I also have had an excellent investment advisor for more than 20 years, and he has done me very well. My investments go up. I'm 73 and retired, and I periodically increase my payout from my investments. Heck, my one son is probably going to inherit far more than he needs, so I really need to think about spending even more.