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 …