- Jeremy Grantham expects the US economy to tank, and stocks to struggle for the next year at least.
- The elite investor predicts the massive bubble in asset prices will burst, causing a recession.
Get ready for a prolonged recession, pressure on stocks for another year at least, and a plethora of other headaches that could intensify the pain ahead, elite investor Jeremy Grantham has warned.
The market historian and GMO cofounder also noted that high inflation erodes returns, called for stock buybacks to be banned, and advised investors to expect more surprises after Silicon Valley Bank's sudden collapse in March. He issued the bleak outlook during a recent episode of the "We Study Billionaires" podcast.
Here are Grantham's 9 best quotes from the interview, lightly edited for length and clarity:
1. "The great bubbles always form at the end of a long, heroic economy. Everything is perfect, and the Fed and the administration have cooperated. When something pricks that confidence and it begins to leak out, there is a long way down to go from the peak of optimism to at least mild panic, if not severe panic. It's a long drop."
2. "I think of it as water behind a dam — you're never going to be able to predict which brick goes first. The first thing that goes will generally be a surprise. Then how it cascades is virtually unknowable."
3. "After the great bubbles, there has always been a recession. If people behave well, the leaders are sensible, it's a mild recession like 2000. If they behave very badly and get unlucky, like 1929, you get a depression."
4. "Most of the decline in these great bear markets only happens after the first interest-rate cut. So you tell me when the first interest-rate cut is, and I will tell you when the second half of the pain is going to start. It would be unlikely from a historical point of view that this stock market event would not run deep into next year."
5. "25% is a decent down payment on this bear market. In an economy that has inflation, the passage of time is pretty painful if you even stay flat. You are losing money at a decent speed, and people have forgotten that."
6. "How long and how painful will the actual reality be? We've never had anything like a soft landing, but 2000 was the least-hard landing. Everything that was favorable could be favorable, and still it droned on for three years. The Nasdaq went down 82%, profit margins got hammered, and the growth rate slowed down moderately. We're going to have an unknowable bad time." (Grantham noted that unlike the current "everything bubble," bonds and housing weren't in bubble territory during the dot-com boom.)
7. "Of course, the corporate insiders know more than those buying from the outside. Of course, it is facilitating stock manipulation. Of course, it should be illegal." (Grantham was criticizing stock buybacks.)
8. "It is much healthier in the long run for the economy to have corporations paying simple dividends. Then some of the incentive to buy back stock rather than build a new factory disappears, and there will be a little bit more growth in capital expenditure, which has really done badly. GDP growth and productivity have slowed in the US as this new fashion came in. The state of US capitalism is not that healthy."
9. "You're running out of people, you're running out of resources, and the climate is turning against you. That seems inflationary, inflationary, inflationary — all three of them — and anti-growth. They're all bearing down on us now, so we have a long-winded recessionary period coming any minute." (Grantham warned an ageing global population, commodity shortages, and natural disasters threaten to prolong or deepen the downturn ahead.)