Jeremy Grantham Has Seen Enough. Calls US Stocks ‘4th Real McCoy Bubble Of My Career’

Jeremy Grantham Has Seen Enough. Calls US Stocks ‘4th Real McCoy Bubble Of My Career’

81-year-old Jeremy Grantham is growing increasingly confident that the post-COVID rally in US equities counts as a bubble, and he thinks it's being fueled by the retail crowd. "My confidence is rising quite rapidly that this is the fourth ‘Real McCoy’ bubble of my investment career", Grantham told CNBC’s Wilfred Frost on Wednesday afternoon. Asked if he "applauds" newly-christened day traders who have scored quick gains in the rebound from the March lows, Grantham said "I certainly appla
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11 thoughts on “Jeremy Grantham Has Seen Enough. Calls US Stocks ‘4th Real McCoy Bubble Of My Career’

  1. I read a long interview with him this past weekend and he went into detail on why Ben Graham style value investing in developed markets is dead & won’t be returning. When I was done I asked myself why anyone would invest money with his firm in equities in those markets. It’s a big percentage of the 50 billion they manage.

    On the other hand his firm expects Emerging Market Value stocks to do very well over the next 7 years if you can stomach the volitlity.

  2. This article might be tedious for the highly informed. But for a relative beginner to high finance it provides some different perspectives.

  3. The full text of Grantham’s comments was very helpful for historical perspective. The one thing that seems different today and tips towards helpful for investors is that all the major economic influence centers seem to be in agreement that the market needs to stay strong. They may not be able to accomplish that, but they will try their damnedest.

    1. In answer to above, personally I’m trying to hold portfolio beta around 0.6 with single stock longs vs a partial hedge of index shorts, and significant cash. Some yield holdings but not using much bonds for that, because, where is there enough bond yield worth buying?

  4. I see this kind of sinplistically.

    If the virus is controlled, the economy recovers. With too much debt, lots of rebuilding, deglobalization, higher tax rates, etc but it’s still a “normalish” economy plus the Fed and MMT whether explicit or de facto.

    So this is really a bet on drugs and epidemiology.

    The epidemiology is getting figured out. We know enough about transmission, IFR, mutation rate, etc to make estimates. Like we know the IFR isn’t 10% like it seemed for a couple weeks in Wuhan, we know the virus is not mutating quickly, we know it is spread mostly by extended in person exposure, etc.

    So this is really a bet on drug development.

    And that’s a type of bet I’m comfortable making.

    1. @jyl I like the way you think. However, I would make three points in addition.

      1) Optimistically, really effective drugs are between one to two years out.
      2) Vaccines are a crap shoot, but might be available in the US by mid-2021. However, you will also need to be especially well connected or quite rich to get a dose in that time frame.
      3) The epidemiology is getting figured out, but my observation is that Americans will be unable to make use of that information if it costs them any significant degree of pleasure.

      Hence, for the next couple of years, I am moving my holdings to countries that have demonstrated the ability to handle a moderate amount of discipline and have demonstrated the ability to suppress the pandemic. Obviously, that does not describe the US. That is a defensive move until we hit the next low. I expect a ‘W’ recovery in the US, and we are just starting our way down for the second time.

  5. I am not particularly optimistic. But what is not discussed is effective treatment rather than a vaccine. HIV has no vaccine. But it is not the problem it was because there are now pretty effective treatments. Someday maybe there will be a vaccine for it. In the meantime there are effective treatments for the disease. The focus on the vaccine is important. But in the near term, effective drug treatments are more likely to help our problem. If we had effective treatments, we could be confident of leading a somewhat normal existence. That is more realistic- a vaccine is likely to be a much longer slog. That said, GMO makes a good point. The risk adjusted return right now is unknowable really, but does not appear that great to me.

  6. What an anomaly that those who are well respected with a history of investment success are being “schooled” by Robinhood’s retail investors. They don’t really understand what is happening. The other thing that one can say is that there is a generational gap. Old (losing), young (winning). The final chapter has not been written and perhaps there is a brutal turn ahead, but for now it is an anomaly.

  7. For the broad market indexes, I don’t see much (any?) fundamental undervaluation. I can see “external” forces driving asset price inflation regardless – all the Fed/MMT stuff well covered here. But when I do old school modeling and valuation, nope, not compelling.

    On an individual stock level, I see lots of fundamentally undervalued names. Do this: pull a list of all US stocks, screen for % from YTD high and low. You’ll see lots still down big pct from highs, most of those are cyclical names, and many of those had been underperforming into the year as you’d expect for cyclical names in the later stages of a cycle. Eliminate the ones whose businesses are plausibly not going to be the same post-virus – mall based retail, office REIT, etc. Still a pretty big list. Narrow down to the ones whose businesses should recover post-virus to pre-virus levels. That’s still a long list, so narrow down further to those where you’re very confident of recovery. There’s more than a small number of targets to work on.

    The thing is that this requires a bunch of work. I think the days of simply buying SPY or a basket of FAMNGs is over for a while. Although that’s been the wrong call since late March …

  8. No vaccine for HIV because HIV is a very unique virus. Summary here:

    For SARS-CoV-2, none of that applies. The immune system does respond to the virus and defeats it in most cases, there are recovered patient whose antibodies can be copied, the developmental vaccines are showing efficacy in animal models, etc. This looks like a more “conventional” vaccine problem, if you will. With two dozen vaccine development programs, limitless funding and urgency, and overwhelming political imperative to approve something . . . the odds of success are high.

    “Success” doesn’t mean in six months everyone gets a vaccine that gives 100% permanent protection. More like in six months some people can start getting a vaccine that is 50% effective in preventing infection and 70% effective in preventing serious symptoms but has to be readministered every year – numbers are guesses but something like that.

    Not a magic bullet but a real help – R is around 1.1-1.2 in the US states with recent surges in cases, if vaccines and general not being stupid (wear mask, etc) take that down to 0.8, the pandemic will be suppressed fairly quickly.

    Add similar outcomes in treatment drug development. Convalescent sera seems to have a significant benefit in early/mild disease, so it’s reasonable to think that targeted antibodies have a good chance of delivering similar or more benefit. Immunosuppression via dexamathasone seems to have a significant benefit in severe disease, so it’s reasonable to think that targeted immunosuppressives have a good chance of being equally or more effective.

    None will be magic bullets but as doctors learn what drugs to use at each stage of the disease, the consequences of getting Covid will be much less. We’re already seeing the IFR markedly lower than it seemed to be in Wuhan and Italy.

    None of this is certain, it’s all still a bet, but I feel a lot more comfortable assessing this sort of thing now than, say, in March.

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