The last time I checked in on Jeremy Grantham, he was regaling CNBC with tales of what he called “the fourth ‘Real McCoy’ bubble of my investment career.”
That pronouncement, delivered during a chat with Wilfred Frost, came on June 17.
At the time, the Robinhood set was busy bidding up shares of bankrupt companies, an exercise in abject absurdity. “We’ve now reached a level where you buy bankrupt companies and issue stock in bankrupt companies,” an incredulous Grantham told Frost.
Fast forward nearly seven months, and Grantham’s “Real McCoy” bubble is even more… I don’t know what the superlative is for “Real McCoy”? Is it Real McCoy-est?
In a new letter, dated January 5, Grantham didn’t mince words. Or actually, he did, but he was unequivocal about the bubble thesis. In fact, he delivered an assessment so hyperbolic it could easily pass for a feature piece on a some kind of tabloid-esque, gold-focused blog.
“The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble,” Grantham declared, waxing hysterical in the very first sentence.
He even used the word “hysterical.”
“Featuring extreme overvaluation, explosive price increases, frenzied issuance, and hysterically speculative investor behavior, I believe this event will be recorded as one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000,” he said, adopting the customary “gather ’round youngins” cadence.
That’s the kind of bold prediction you can deliver when you’re 80 years old and they’ve already placed a pewter bust of you in the hall of fame. There’s no career risk. You can just say whatever you want.
Of course, Grantham’s not wrong to point out obvious signs of extreme speculative excess (the figure, below, is just one oft-cited example), just like Bloomberg isn’t wrong to pen article after article documenting the same signs of froth. But past a certain point, you have to be discerning and separate entertainment from useful analysis.
On the media side of things, remember that it’s a business over there. Again: It’s a business. They’re not trying to help you make money, they’re trying to make money themselves. And that involves producing content that people click on and otherwise are inclined to read. Sometimes that accidentally lines up with quality content, but more often than not, it’s conducive to sensationalism.
As far as “name brands” and “known quantities,” it’s worth noting that your favorite “legend” probably missed the boat during the early stages of the rally off the March lows, or at least according to their public pronouncements.
For example, Paul Tudor Jones ate “humble pie.” Howard Marks penned a dizzying array of increasingly incoherent missives which culminated in an attempt at philosophical profundity so laughable that I stopped reading his memos for the first time in my life. Then there was Stan Druckenmiller, who in May boldly proclaimed that “the risk-reward for equity is maybe as bad as I’ve seen it in my career,” before admitting two months later to having only managed a 3% gain during a 40% rally. (As of September, Stan still insisted stocks were a bubble, calling equities an “absolute raging mania.”)
And don’t forget about Warren Buffett, who incurred a mind-boggling $50 billion paper loss during the first quarter and then proceeded to just buy back his own shares, apparently for lack of better ideas.
That doesn’t mean folks like Boaz Weinstein didn’t blow the doors off, but your average investor isn’t quoting Boaz. He/she is quoting folks like Grantham.
Anyway, getting back to Grantham’s latest, he promised that “this bubble will burst in due time, no matter how hard the Fed tries to support it, with consequent damaging effects on the economy and on portfolios.”
Then, just in case investors were somehow unclear about what, exactly, he was trying to convey, Grantham wrote that “for the majority of investors today, this could very well be the most important event of your investing lives.”
At the risk of coming across as unnecessarily abrasive (not to readers, but rather to Grantham), I’d ask you to honestly and dispassionately rate the following quote based on an objective assessment of whether it does or doesn’t say anything meaningful:
The real problem is in major bull markets that last for years. Long, slow-burning bull markets can spend many years above fair value and even two, three, or four years far above. These events can easily outlast the patience of most clients. And when price rises are very rapid, typically toward the end of a bull market, impatience is followed by anxiety and envy. As I like to say, there is nothing more supremely irritating than watching your neighbors get rich.
That is totally vacuous. There’s nothing there. And the implicit claim to having invented one of the Ten Commandments (the “as I like to say” bit) makes it even more comical.
Investors who read missives penned by folks like Grantham, Buffett, and Marks fail to ask themselves whether what they’re reading is actually any semblance of profound. Very often, the answer is “no.” The quote above from Grantham can be summed up as follows: Asset prices can rise and stay high for quite a while, and that’s annoying if you’re not invested in the assets whose prices are rising.
Grantham’s January 5 letter is just one man alternating between stories about mistiming the top and amorphous aphorisms that are indistinguishable from the kind of generic quotes you might find in an investment themed tear-off calendar sitting sadly next to some stale candy on the impulse buy rack in the checkout line at Barnes & Noble.
And that isn’t totally lost on Grantham, either. “Believe me, I know these are old stories,” he said, about 700 words in.
But don’t worry, because, as Grantham assures you, spending part of your day reliving his greatest missed opportunities is “directly relevant” to the current circumstances. Here’s how, according to Grantham:
This current market event is indeed the same old story. This summer, I said it was likely that we were in the later stages of a bubble, with some doubt created by the unique features of the COVID crash. The single most dependable feature of the late stages of the great bubbles of history has been really crazy investor behavior, especially on the part of individuals. For the first 10 years of this bull market, which is the longest in history, we lacked such wild speculation. But now we have it.
Again, I challenge you to find something in that quote that’s profound. Grantham has just told you that speculative manias are defined by “really crazy investor behavior.” Of course, “really crazy investor behavior” is just another way of saying “speculation.” So, essentially, Grantham has told you that the defining characteristic of speculative manias is maniacal speculation.
Also, there are myriad examples of “wild speculation” one can cite over the past decade, a period Grantham claims was devoid of such behavior. It seems trivial now, but Bitcoin at $20,000 in 2017 looked pretty “wild.” And what about Target managers quitting their jobs to short volatility for a living in 2017? Does that count?
You might be asking yourself: Does Grantham have anything at all interesting or nuanced to say? The answer is “not really.” Here’s another gem, for example:
I am not at all surprised that since the summer the market has advanced at an accelerating rate and with increasing speculative excesses. It is precisely what you should expect from a late-stage bubble: an accelerating, nearly vertical stage of unknowable length — but typically short. Even if it is short, this stage at the end of a bubble is shockingly painful and full of career risk for bears.
Got that? We’re in “an accelerating, nearly vertical stage” of a “late-stage” bubble, but unfortunately, it’s hard to call the top because, as Grantham explained, this stage is “of unknowable length.”
Of course, something that’s “of unknowable length” isn’t necessarily “late-stage.” That’s like saying we’re driving the “last mile” on an “unknowably long” road.
Further, it’s apparently not “unknowable” after all, because in the very same breath, Grantham said it’s “typically short.”
He carried on (and on), but there’s little utility in indulging him. If what you want is to be regaled with tall tales told in a folksy cadence by an octogenarian, I recommend taking a vacation to Appalachia rather than burning life premium contemplating the merits of the puts Grantham isn’t advising you to buy (because, as he reminded you, “I am long retired from the job of portfolio management.”)
At one point, Grantham went all-in on the wistful act. “I am doubling down, because as prices move further away from trend… my confidence as a market historian increases that this is indeed the late stage of a bubble,” he said. “A bubble that is beginning to look like a real humdinger.”
Cue a banjo riff.