Amid one of the craziest bull runs in stock markets in all of our history, calling out a bubble can be quite scary for many investors, but not for Jeremy Grantham. In a frenetic era of meme stocks, cryptocurrencies, and bidding wars, most people tend to overlook the risks and focus on the promise of future gains. However, there is an imminent and growing danger that this unprecedented mania might end up triggering the greatest stock market crash ever recorded. That’s what the chairman of the board of famed asset managers GMO has been warning, stressing that we’re in the middle of the greatest financial bubble ever seen. Grantham, an experienced investor who spent decades analyzing how bubbles are formed, has lived through and called numerous modern booms and bursts, including the dot-com crash in 2000, the market peak in 2008, and the market collapse of 2009. Now, he says that we’re headed to a similar fate.
To identify a bubble, it doesn’t take much, he argues. You can see something is terminally wrong in the market when it makes the front pages instead of the financial pages when the news is full of stories of people getting cheated when new coins are being created every month. “The scale of these things is so much bigger than in 1929 or 2000,” he stresses. The current stock market bubble has been fueled by artificial government policies that led many investors to believe overvalued assets could be justified by a booming economy. But as Grantham highlights, the economy isn’t actually booming because there was no real growth in production, and very soon investors will have to confront that reality. And when they do, things will start to rapidly change in the market, leading this bubble to an epic burst.
Grantham believes that the next stock market crash will cause an enormous negative wealth effect, bigger than it has ever been, compared to any other previous bubble burst. “It’s the first time we have bubbled in so many different areas – interest rates, stocks, housing, non-energy commodities. On the way up, it gave us all a positive wealth effect, and on the way down it will retract, painfully,” he warns. “This bubble is the real thing, and everyone can see it. It’s as obvious as the nose on your face. Today, it is clear to me that this is the most dangerous package of overpriced assets we have ever seen in the US,” says Jim Grant, describing that we have the most overpriced fixed-income market in the history of the world.
At this point, bubbles are emerging everywhere. Housing, equity, bonds, stocks, crypto. If they simultaneously crash, as most economists predict they will, this will undoubtedly be the sharpest collective loss of wealth ever recorded. That’s why, Grantham is sounding the alarm to the greatest bubble in financial history, warning investors that history is about to repeat itself, and this time, the stage is set for an apocalyptic financial meltdown.
Sharing a similarly dire forecast, finance, and economic expert, Alasdair Macleod, affirms that one of the biggest catalysts to the coming inflationary collapse were government policies that recklessly expanded our money supply, downgraded our living standards, our currency, and left Americans struggling with runaway inflation in that process.
The expert emphasizes that “this has gotten to a point where we can’t go any further. We are at the top of the bubble. What happens when this market tops out? The dollar goes down with it”. Macleod adds to the predictions that the everything bubble burst is fast approaching: “Look at the fundamentals in the economy. They are talking about economic recovery, but look at all the shops that are closed and never to be reopened. This is not a healthy economy. This is a very bad economy. The reason why prices are rising is you’ve got all this money being put into the consumers’ hands. This is the middle class here, and they are spending this money, and where is the production to satisfy the spending? It’s not there, it’s closed down. There is no solution. We are getting to the point that there is actually no exit from this mess,” he warned. A financial disaster of unprecedented proportions seems just a matter of time. With so much debt, and so little resilience, our over-leveraged financial system is doomed to face a reckoning and everyone that have seen this happening before is telling us right now that conditions in the markets are increasingly unsustainable. Those who have chosen to ignore the dark clouds that rising on the horizon will soon find themselves amidst the most devastating financial catastrophe of our lifetime.
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