Aside from fretting over the imminent death of our planet, Jeremy Grantham seems to be enjoying himself.

Periodic grumbling about markets being overvalued in 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020 and 2021 saw him dismissed (once again) as an old permabearish sourpuss. After soaring in the wake of the financial crisis, GMO’s fortunes waned once more, and Grantham stepped back to devote himself to combating climate change.

But his January 2022 note Let The Wild Rumpus Begin set the tone for this year, predicting that the “fourth superbubble of the last hundred years” had finally reached its zenith and would imminently deflate. Since then it’s mostly been carnage on global markets.

This summer has seen some respite, on hopes that a recession is not imminent and/or that central bank will soon pivot away from tightening monetary policy. Unfortunately, Grantham is now out with a new paper rubbishing those hopes, and advising investors to “prepare for an epic finale”.

The current superbubble features an unprecedentedly dangerous mix of cross-asset overvaluation (with bonds, housing, and stocks all critically overpriced and now rapidly losing momentum), commodity shock, and Fed hawkishness. Each cycle is different and unique — but every historical parallel suggests that the worst is yet to come.

Whatever you may think of Grantham, his latest missive — titled Entering The Superbubble’s Final Act — is worth reading. As always, it’s a well-written, interesting and lucid dissection of the current environment, albeit from someone who looks at world from a pretty downbeat angle.

Not that he is in lonely company at the moment. Most analysts and a fair few investors seem pretty sure that the summer bounce was a classic bear market rally — which is now starting to unravel again as central banks reiterate that they very much remain in tightening mode. Grantham points out that this is par for the course.

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 US 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.

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