Jeremy Grantham just wants to help. That’s all.
He said as much in the very first paragraph of his latest apocalyptic missive penned, as usual, in a folksy cadence which, after all these years, is infinitely more annoying than it is disarming.
After regaling readers with yet another retelling of the American Raceways story (a formative tale of a 10-bagger from the late 60s), Grantham suggested he shoulders a heavy burden. And I don’t mean the weight of his $1 billion personal fortune.
Grantham’s solemn, paternalistic duty is to tell market participants when stocks are about to collapse. And it’s not a responsibility he takes lightly. “[G]iving this advice is my job and possibly the right thing to do,” he declared, in a piece published on Thursday.
Unfortunately, Grantham wasn’t being disingenuous. I say “unfortunately” because at least if he were (being disingenuous) we’d know he’s not completely oblivious to the distinct possibility that he causes undue psychological and economic harm every time he waxes hysterical about bubbles.
If protecting the investing public from prospective losses is the “right thing to do,” a corollary says advising the same investors to cash out prematurely must be “wrong.” And not just because that would constitute a bad market call.
If we can make normative statements about the advice we give based on whether it positively or negatively impacts people’s financial circumstances (as Grantham suggested on Thursday), then it was morally wrong for Grantham to tell a CNBC audience on June 17, 2020, to “cash out and put it in their piggy bank.”
Anyone who listened and sold their stock exposure that day missed out on 54% upside in the S&P 500. And that’s to say nothing of all the other times Grantham implicitly or explicitly suggested people sell over the course of what ended up being one of the most lucrative periods for equity investors in history (the figure, below, isn’t exhaustive, but it gets the point across).
Grantham on Thursday lamented that “speculators in the current bubble” probably won’t listen to his sage advice because he’s an “old fogey” (his words) and old fogeys “just don’t get it” (his words again).
It’s possible — although he never says this — that “speculators” are generally deaf to Grantham not because he’s old, but because he’s wrong a lot. Everyone has to learn this lesson for themselves at some point. Nobody can do it for you. It’s a rite of passage. For lack of a more original metaphor, Grantham is the broken clock personified.
Very much contrary to the contention that Grantham, and people like Grantham, are somehow looking out for the best interests of humanity by insisting, at regular intervals, that everyone’s wealth will be vaporized overnight, the reality is they’re doing at least as much harm as policymakers with delusions of grandeur.
In his Thursday piece, Grantham decried the uneven distribution of assets. He called growing inequality “the most important longer-term negative” of bubbles in stocks, bonds and real estate. “To participate in the upside of an asset bubble you need to own some assets and the poorer quarter of the public owns almost nothing,” he wrote.
That’s certainly true. And, as any regular reader will promptly attest, I’ve written far more about the unequal distribution of assets over the past year than Grantham, most recently in “No, ‘Americans’ Didn’t Get $34 Trillion Richer During Pandemic.”
But what never ceases to amaze me is the lack of self-awareness on the part of folks like Grantham. Do they really believe they’re part of the solution? Is telling everyone that stocks are on the brink of an epic collapse while dog-whistling to conspiracy theorists likely to foster trust in markets and encourage regular people to invest for the long-term? Or is it more likely to scare the middle class away, even as the rich and speculators summarily dismiss it as nonsense on the way to increasing their already outsized footprint in markets?
Relatedly, I’m amazed at the investing public’s willingness to countenance the glaring contradiction in the idea that central banks are hell-bent on harnessing the power of the printing press to levitate asset prices and the notion that the best way to trade such a scenario is to be bearish on those same assets. Anyone who bought into that internally inconsistent line of thinking post-financial crisis is poorer for it.
Grantham did a bang-up job Thursday castigating the Fed and sundry policymakers for their role in recent bubbles. Here are some choice cuts:
Alan Greenspan, who I considered then and now to be dangerously incompetent, famously acted as cheerleader in the formation of the then greatest equity bubble by far in US history in the late 1990s and we all paid the price as it deflated.
Bernanke should have been wiser from the experience of this bubble bursting and the ensuing pain, and he might have moved against the developing housing bubble – potentially more dangerous than an equity bubble as discussed. No such luck!
Yes, Bernanke and Paulson did a perfectly fine job of lobbying Congress for help, etc., after the fact. But overall it was as if the Fed, at the wheel of a titanically-sized economy, had imprudently raced the economy through dangerous waters, ignoring the risks of icebergs so profoundly that the captain deserved a court martial but instead, after the boat sank, was rewarded for doing a serviceable job of helping women and children (and bankrupt bankers at Citi for that matter) into lifeboats.
Hindsight is a wonderfully accurate lens, and although the likes of Grantham seem to believe they’re the only ones who’ve ever availed themselves, we can all clearly see where things went wrong in the aftermath of a crisis. Every error looks obvious, cringeworthy soundbites abound and there are villains and scapegoats aplenty. Crises are the stuff feature films and bestsellers are made of, which is why we make feature films and bestsellers out of crises. We don’t need Grantham to tell us the story again. We’ve got Michael Lewis for that. As noted above, all Grantham’s doing is dog-whistling to a crowd that scarcely needs another reason to be paranoid.
Like others of his ilk, Grantham demands accountability from everyone but himself. He’ll quantify the vast sums lost to history’s many burst bubbles and assign blame for those losses, sometimes accurately, other times not. But what he won’t do is put a number on how much money you’d have missed had you listened to him and sold every time he said the word “bubble.” The same is true of countless… let’s call them “lesser Granthams.”
To be clear, I’m not suggesting I’m wiser than Jeremy Grantham. Nor will I ever have a claim on a seat in the pantheon where he sits. And, yes, Grantham has been precisely correct on a few occasions — like all broken clocks, he’s prone to being spectacularly right from time to time.
While it may seem as though I’m casting aspersions, I’m really just stating the obvious. Because apparently, nobody else will. Grantham is wrong a lot. But more importantly, he belongs (wittingly or not) to a contingent of market observers who all read from the same playbook. Bubbles are everywhere. Everything’s a house of cards. It’s all the Fed’s fault. And it’s all going to come crashing down at some indeterminate point in the future. (Just keep holding your breath. They’ll let you know when they’ve got an exact date.)
Humans have a tendency to become caricatures of themselves in old age. Grantham is no exception. In fact, he’s a textbook case. In closing, let me offer this: Just because you’re wealthy and highly respected doesn’t mean you’re not a charlatan.
This may not be a bubble and it may not collapse at any moment, but we have had a spectacular run (up) and reversion to the mean is a thing. Real yields are going up, and equity prices are likely to do the opposite until equity prices reach a new equilibrium.
“reversion to the mean is a thing”
Not really in this context. Reversion to trend is a thing, though. Which is what Grantham argues.
I stand corrected. Appreciate you.
Well put.
I hope the transition in markets continues as smoothly as presently. The word bubble is a bit abused at this point.
Maybe he’s another stopped clock?
Finally, somebody says it like it is. Grantham has not covered himself in glory. I wonder how GMO survives as an organization.
John Hussman is another doomsdayer. I love is monthly newsletter; the arguments are very clear and he has a lot of data to back it up. They are a joy to read for a nerd like me. But if you invested in his funds, you would have lost a lot of money.
“…if you invested in his funds, you would have lost a lot of money.”
That’s problematic
Fear sells, spectacularly when markets are a sea of red, which is, not coincidentally, when financial networks seek Jeremy’s timely counsel. We need a Grantham counter, a financial markets Geiger counter tuned to the frequency of Jeremy’s media appearances, so that we collectively know when it’s Get Me Out time.
Grantham’s record serves best as a contra-indicator. There is no need to even read the Bloomberg piece as they are just trotting him out, like a ‘usual suspect’, and dusting him off for the cameras. We all know the script. Financial-News niche actor. When QQQ crosses it’s 200dma the Journalism-AI scheduler automatically books Jeremy. Next it probably outlines/writes a few articles for Bloomberg.com and the scripts for the BloombergTV interviews. Wonder if J.G. shows up on “The Terminal”?
Then there’s James Grant, more of a class act, who at least makes me laugh if I’m in the mood for his brand of humor. Looks like he was torn from an old New Yorker cartoon. Mr. Grant is a bonafide author.
Netflix down 20% after hours on lower subscriber number. Is there room in the “rabbit hole” for Nuralagus (a.k.a., the Minorcan giant rabbit) if 2022 keeps this up? I’m still ticked off about the changes made to the VOX index that added Netflix, FB, etc.
He’s also late on this call. The segments of the equity market that were indeed truly bubbly have already declined substantially: SPAC’s, meme stocks, the pandemic darlings (PTON, ZOOM, etc), Cathie Wood’s innovation basket, and other profitless/long duration plays.
Good stuff, H! I wish more writers took note of your key points here.
I had never heard of Grantham until Mr H made fun of his Joker costume here. And I consume a lot of market reading everyday (I haven’t watched CNBC since 2000.) I guess, aside for here, I managed to avoid most of the carnival barkers. That said, Drunkenmuller cost me a bit in my hesitation to rejoin the 2020 market after I had a spectacularly profitable hedge the previous March. Thankfully, and finally, I’ve learned to ignore the voices and stick to the numbers.
The Joker costume is Gundlach. I don’t think Jeff is a charlatan. He just plays one on TV. He knows what he’s doing. He just likes the press associated with bearish calls.
This is a great article and frankly the reason I subscribe here. Perspective on markets that is pumped into the headlines needs to be vetted.
“Humans have a tendency to become caricatures of themselves in old age”
A little startled by this nsightful and eloquent observation, thank you for this H
Aging is the great equalizer for all humans … we desperately hope to remain relevant, though often forget or refuse to accept that in order to do so, we must continue to interact, progress, and evolve within the world we remain alive in…GLTA…
Amen, Mr. H!
I belive that today’s price is tomorrow’s headline. Rarely is it the other way. What is my time horizon?, Do I use leverage? How do I decide I’m wrong? Part of this is personality, don’t you think?
When I got on the trading desk every morning, I would say to myself The quest for logic continues…….
Interesting to revisit this in light of recent market developments. Was he a broken clock that happened to be right as it is “that time of the day”, or a prophet? He should get some credit for calling the bubble I guess, even if he was a tad early.
I too am curious given the debate and rigor from this site.
To be fair Grantham’s statements (ignoring made up terms like “superbubble”) on the surface are wise…
https://archive.ph/NTW5L (non paywalled)
But in the details wrong and Mr H’s assertion is materially correct: crying wolf and getting bit by a shark are not the same.
The asset high for the S&P500 was Dec 31st 2021, and the market’s decline (and indeed commodity inflation pressure) really occurred after Russia’s invasion of Ukraine in February, then a second drop after the Fed Missed Inflation in April.
So Grantham’s comparisons to 1929, 1969, or the GFC are disingenuous at best; cynically the commonality is the emotion and hype of a crash.
Grantham’s assertion of a 2022 housing bubble still hasn’t been borne out. Case-Shiller’s still not plateau’d (US housing shortage is real and exacerbated by Covid19) and following the Inflation narrative/logic then RealEstate is actually a preferred asset.
Unfortunately Grantham’s railing against the Fed didn’t come with actual instructions for them to immediately start rate hikes and QT, otherwise he’d have been more believable.
His financial advice is fairly scattershot:
“A summary might be to avoid U.S. equities and emphasize the value stocks of emerging markets and several cheaper developed countries, most notably Japan. Speaking personally, I also like some cash for flexibility, some resources for inflation protection, as well as a little gold and silver”
His “avoid this” S&P500 is currently at -11% from Jan 21st, not a “3 sigma” loss
VEMAX is -15% , I’m not sure if Grantham’s EM would include Russia?
HEWJ is about neutral – so if inflation’s at 10% not a great hedge
Cash would have been solid, too bad it’s “some cash” mixed with a lot of other poor recommendations
Unsure which “resources” he means, if he’d called Oil or pushed TIPS he’d be historically more credible
IAU is down about .5% (so almost neutral)
But don’t believe me, you could have invested in the following…
GMOM is about even
GEMEX is -25%
GEACX is -10%
And all of that “it’s crashing” is predicated on knowing when to “get back in”, the penultime point Mr H makes (and Grantham did not answer).