Jeremy Grantham issued grim warnings about the US stock market and economy this week.
Stocks will slump despite AI buzz, and there's a 70% chance of recession by early 2025, he said.
Grantham touched on meme stocks, banking risks, real estate, commodities, and Elon Musk's Tesla.
Jeremy Grantham has sounded the alarm on US stocks, warned the economy is likely to slump into recession by early 2025, and cautioned that problems may be brewing in the financial system.
GMO's cofounder and long-term investment strategist also reflected on his inadvertent investment in a meme stock, advised against buying real estate or commodities, and touted Elon Musk's Tesla and other companies fighting climate change.
Grantham was speaking at an investor event held by Livewire Markets in Sydney this week. Here are his 10 best quotes, lightly edited for length and clarity:
1. "I don't think we're in a new bull market. There's never been a bull market in history that started from such high prices — and by a lot, this is not even close. But whether we're going to go straight down, and how badly, that's a more interesting issue."
2. "A dozen giant American stocks have had a hell of a run on the back of AI, and that has certainly created the impression that it's game over. The problem is prices are incredibly high and basically the economy is beginning to unravel. So it's a head fake, but it's a hell of a head fake."
3. "The US equity market, led by the growth stocks, became a frenzy of meme starts and craziness, led incidentally by the biggest investment I ever made in a startup, QuantumScape. It came as a SPAC, which I hate, I think they should be illegal. This company that had four years before it had a product — forget profits or sales — was selling for more than General Motors or Panasonic. There was nothing at that scale in 1929 or 2000. This was probably one of the great speculative events of all time."
4. "I would be very careful with real estate. All over the world, the last 20 years of declining mortgage rates have driven real estate to really crushing high multiples of family income, so high that young people can't buy a house. So I wouldn't touch real estate."
5. "I am very nervous about the economy. I'm very nervous about an eventual financial trouble."
6. "I love climate-change stocks. They will have an incredible top-line revenue growth, driving forward like Tesla and electric vehicles versus dopey VWs and old-fashioned cars. This is the area with the wind in your sails, and to fight it would be a terrible mistake."
7. "It's woken everybody up, and it was like dealing with sleepwalkers before that. When you see something terrible coming down the pipeline and nobody taking it seriously, that is a bit of a nightmare. That phase at least is over." (Grantham was welcoming increased awareness and acceptance of climate change.)
8. "It will dominate the portfolios of the rest of your lives. It doesn't mean there won't be financial problems, it doesn't mean there won't be bubbles. But it will be the sector of the economy that drives more growth than anything else." (Grantham was referring to companies working to combat climate change.)
9. "Bear in mind, every commodity is a royal pain to own because it has totally unpredictable and shocking drops along the way."
10. "The Fed and the economic establishment, the financial establishment, they've always underestimated the probability of a recession. They always say everything will be fine. This is not unusual, it's absolutely inevitable, and here they go again. It would be unique if we don't have an extended problem with the economy.
(Grantham pegged the probability of a recession in the next 18 months at about 70%.)
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