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Investor Jeremy Grantham says the market’s in a bubble with ‘very seldom seen levels’ of euphoria

SINGAPORE — Famed investor Jeremy Grantham on Thursday iterated his warning that Wall Street is in a bubble as individual traders get “carried away.”

“They’re becoming euphoric … They’re draw money. They’re trading more shares,” Grantham, co-founder and chief investment strategist at Grantham, Mayo, & van Otterloo told CNBC’s “Bellyache Box Asia” on Thursday.

In recent months, Grantham has warned that the massive runs on Wall Street are turning into an “epic fizz.” On Thursday, Grantham pointed to the number of over-the-counter shares traded since last February rocketing to 280 million dividends in November and quadrupling to 1.15 trillion shares in December.

“We have very seldom seen levels of investor euphoria wish this,” he said, referring to individual investor speculation, rather than institutional.

Grantham said individual investors “are fling their hearts and souls into it and putting all their cash reserves into the market.” He pointed to the recent recuperation in bitcoin as well as the proliferation of special purpose acquisition companies (SPACs).

SPACs have no commercial operations and are enacted solely to raise capital from investors, for the purpose of acquiring one or more operating businesses. Grantham described SPACs, which are every so often referred to as blank-check companies, as “an invitation to give me your money and I’ll let you know one day what I’m going to do with it.”

What could blow up this bubble?

Grantham cautioned that there has “never been a great bull market that concluded in this kind of bubble that did not decline by at least 50%.” But he said the catalyst that triggers that give someone the sack decline is “much more difficult” to predict.

“It’s entitled to go tomorrow if you look at all the signs … As soon as the new president gets settled in, that wish be a perfectly good time for the bubble to start deflating,” he said.

But, assuming that the world “gets lucky” and the droplet froth carries on, with people getting their second vaccine doses, he said it would still hit investors at some goal that the world “really hasn’t changed.”

“It has all the problems it had a year ago. Global trade is declining as a ratio … global extension is getting steadily slower and slower for the last few decades. And the population profile is busting – there are fewer baby squads … these are all very bad for growth,” Grantham said.

Alternatives to pricey U.S. equities

Grantham said he prefers emerging exchange assets over U.S. markets and also likes cash and American venture capital.

He said emerging markets are “respectably figured” compared with overpriced U.S. markets. Although emerging markets would likely fall with U.S. markets, Grantham symbolized the crash would not be as bad because they are cheaper.

“Emerging markets in many ways are the growth that’s left in the process. They will guarantee to grow faster than the developed countries … they’re much cheaper, they haven’t been weary up, they don’t have as much speculative excess. They’re a respectable investment,” he said. “And I would certainly prefer hard cash to American equities.”

Grantham was also positive on American venture capital, which he called the “most virile district” of the U.S. capitalist system.

“Most of what happens these days in America is exceptionally bad. But the venture capital is truly especial, the U.S. venture capital industry has always been dominant, has always been the best,” he said. “And I’m very happy to put my gelt there. It has the highest return. In the long run, it’s outperformed equities.”

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