Stocks, Bonds, Real Estate in a Bubble, Says Investor Grantham

Jeremy Grantham, co-founder of money manager GMO, has been saying for several years that US stocks are in a bubble, and he’s not changing his mind now.

The 83-year-old investor, who correctly predicted the stock bubbles of 2000 and 2007, says it’s not just stocks in a bubble now. The same applies to bonds, real estate and commodities.

Regarding stocks, “We have the most exuberant, ecstatic, even craziest investor behavior in US stock market history,” Grantham wrote in a comment.

“The US market today has, in my opinion, the greatest acceptance ever of the idea that stocks are only going up, which is certainly the very nature of a bubble.”

In terms of real estate, “we are actually participating in the broadest and most extreme global real estate bubble in history,” Grantham said.

“Today, homes in the US are at their highest multiple of family income ever, after a record 20% gain last year, ahead of the disastrous housing bubble of 2006.” In Canada, Australia, the UK and “particularly” China, that factor is still there higher, Grantham said.

When it comes to fixed income, “we have the most expensive bond markets in the United States and most other countries in the world, and of course, the lowest interest rates that human history has ever seen,” Grantham said.

On the commodities front, “We have broadly overvalued or beat commodities, including oil and most major metals,” Grantham said.

A combination of deflationary asset prices and still-rising commodity prices could trigger the “ultimate pincer attack on the economy and is almost guaranteed to result in major economic pain,” Grantham said.