Jeremy Grantham CBE, founder and CEO of GMO wealth management fund and Commander of the Order of the British Empire (CBE), said a full-scale financial crash might already be underway. In an interview with Australia’s “ABC News” he stated that the downturn is “likely” already happening, with Wall Street’s tech-heavy Nasdaq down 12% from its peak in November and the broader S&P 500 index down almost 7% from its record closing high in early January. Most speculative stocks are losing over 50%, he reported. (https://www.abc.net.au/news/2022-02-16/jeremy-grantham-warns-super-bubble-crash-likely-underway/100835976)
(Indeed, in early February, Bank of America reported that 46% of Nasdaq’s component companies were more than 50% below their 52-week highs, as Wall Street on Parade wrote Feb. 14.)
For Grantham, “That is the beginning of the burst, when the specs that typically go up quite a lot more than the market go down as the market goes up.”
“So the S&P [500 index] went up 25% last year, and a lot of the most speculative stocks of 2020 were already going down. That is very rare. It happened in 1929. It happened in 1972 before the very big decline then. It happened in 2000 before the tech wipe-out.”
Grantham said that the process of a super bubble bursting appears to be well underway, with many of the most speculative stocks already losing at least half their value from the peak.
“At the end, the speculative stocks start to peel off and, even on the upside for the broader market, they start to go down,” he observed. “That started early last year—the super-duper specs, the worst of them all, started to decline. And then, one by one, they fell in and started to drop. And, as we stand today, something like 40% of all the Nasdaq stocks are down over 50%, which is pretty amazing.”
Grantham said the current U.S. market is looking “eerily similar” to the dotcom boom and bust but, as in 2000, he warned it is not only the speculative stocks that are heavily overvalued and will fall.
“I think it would be unlikely that the market would not come down by 50% from its peak—the broad market, the S&P—and it would be unusual if the specs did not do worse than that.”
