Market Strategist Discusses ‘Super Bubbles’ Bursting — Warns of ‘Outrageously Consequential, Painful Effects’

Market strategist Jeremy Grantham, co-founder of asset management firm GMO, has warned of “super bubbles” bursting. He explained that the Federal Reserve has “created an environment conducive to a chain-linked series of super bubbles that break with outrageously consequential, painful effects.”

Jeremy Grantham’s Warnings

Investment strategist Jeremy Grantham shared his U.S. economic outlook with economist David Rosenberg during a Rosenberg Research webcast, published on March 16. Grantham is a co-founder and chief investment strategist of asset management firm GMO. He has been an investment strategist for over 40 years and has served on the investment boards of several non-profit organizations.

Grantham criticized the Federal Reserve for repeatedly causing asset bubbles. He noted that he was not surprised by the recent collapses of major banks. He compared the present economic situation to that of 2000, emphasizing that back then, “the economy had a gentle recession” without any real estate or debt markdown issues.

“It’s bad enough just doing the equity market in 2000. This time, we have done a dead ringer for the equity market, plus for gravy, we’ve done the housing market and the bond market,” the strategist opined, elaborating:

The trouble with this bubble is it’s an everything bubble. We have bubbled the important and dangerous housing market to record prices. We bubbled the bond market to levels that had never been seen in the history of man with the lowest rates ever recorded.

“The big picture is we have a little handful of these super bubbles. Every one of them is followed by a recession. If you get anything really wrong, like 1929, it’s followed by depression. If you mess around with the financial system, you have the terrible happenings of the Great Financial Crash,” Grantham detailed.

“I don’t think the bear market is likely to end until deep into next year,” the investment strategist continued, adding that “the fundamentals could drag out for quite a while.” Noting that “after April, we will probably begin to see pressure on profit margins, GDP growth, and the labor market,” he concluded:

I hope it’s well known by now that the Fed has never got anything right since Paul Volcker. They have merely created an environment conducive to a chain-linked series of super bubbles that break with outrageously consequential, painful effects.

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