Jeremy Grantham Calls For Blow-Off Top: ‘Brace Yourself For A Melt-Up’

Here we go with the “melt-up” meme again.

At this point, I’m not really sure what counts as a “blowoff” top. That term has been bandied about for the past six months, and there are plenty of folks who will tell you they can define it, but that’s silly. It’s a Trump-ish superlative like “tremendous,” or “phenomenal,” or “big league.” Same goes for “melt-up.” What the hell is a “melt-up,” exactly, if not what we’ve been seeing every single day for years? I don’t know. And contrary to what they’ll tell you, neither does anyone else.

But I guess if you’re going to listen to anyone talk about “melt-ups”, you might as well make it Jeremy Grantham who is out advising investors to “brace yourself.” Here he is explaining that we may be headed for the fabled “blow-off” top:

I find myself in an interesting position for an investor from the value school. I recognize on one hand that this is one of the highest-priced markets in US history. On the other hand, as a historian of the great equity bubbles, I also recognize that we are currently showing signs of entering the blow-off or melt-up phase of this very long bull market.

Basically, he’s arguing that although everything is undoubtedly rich, the euphoria needed to constitute a true bubble isn’t readily apparent yet.

“Two months ago, Robert Shiller also made the point (in the Sunday New York Times) – as I will do – that not nearly enough signs of euphoria were yet present to make this look like a late-stage bubble,” Grantham says.

We’re going to embed the entire note below for you to peruse at your leisure (it’s actually a quick read), but the bottom line is this:

Exhibit 4 represents our quick effort at showing what level of acceleration it might take to make 2018 (and possibly 2019) look like a classic bubble.

A range of 9 to 18 months from today and a price rise to around 3,400 to 3,700 on the S&P 500 would show the same 60% gain over 21 months as the least of the other classic bubble events.


And here’s the bullet point summary:

  • A melt-up or end-phase of a bubble within the next 6 months to 2 years is likely, i.e., over 50%.
  • If there is a melt-up, then the odds of a subsequent bubble break or melt-down are very, very high, i.e., over 90%.
  • If there is a market decline following a melt-up, it is quite likely to be a decline of some 50%.
  • If such a decline takes place, I believe the market is very likely (over 2:1) to bounce back up way over the pre 1998 level of 15x, but likely a bit below the average trend of the last 20 years, as the trend slowly works its way back toward the old normal on my “Not with a Bang but a Whimper” flight path.

Now enjoy reading about how you may be set to get even richer in the near-term – in Grantham’s “personal view”, of course …


5 thoughts on “Jeremy Grantham Calls For Blow-Off Top: ‘Brace Yourself For A Melt-Up’

  1. Seems I have a soul mate in the neighborhood of cognitive dissonance here with Uncle Jeremy. Wow – what a rant! I wonder if/how he reconciles his suggestion to load up on EM with his stick to “quality” narrative.

  2. Looks like a good contrarian indicator. However, I will wait for John Mauldin to capitulate before I load up inverse 3X instruments..

  3. If an individual stayed awake during their economic classes in high school or college, NET WORTH comes from subtracting DEBTS from ASSETS. However, today… we don’t worry about the debts. We only look at the assets. This is like eating all the junk food during the holidays and not worrying about the way it comes out the other end. SRSrocco Report

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