Legendary investor Jeremy Grantham warns Tesla stock is in a bubble, rings the inflation alarm, and predicts an epic market crash
- Jeremy Grantham said Tesla stock is overvalued, and the automaker will face tough competition.
- The GMO boss diagnosed a massive asset bubble and predicted a historic crash.
Tesla stock is in a bubble, and Elon Musk's electric-vehicle company has zero chance of meeting its shareholders' massive expectations, Jeremy Grantham said in a Bloomberg interview on Friday.
The legendary investor and chief strategist of Grantham, Mayo & van Otterloo also sounded the inflation alarm, blasted the Federal Reserve for pumping up asset prices, and reiterated his warning that the worst market crash in US history is coming.
Here are Grantham's seven best quotes from the interview, lightly edited and condensed for clarity:
1. "Tesla's valuation assumes it will be not only brilliantly successful but multiples as successful as the FAANGs, which are some of the great companies in the history of capitalism. That is a big ask." - Grantham noted that Tesla trades at several times the price-to-sales ratio of Facebook, Amazon, and other tech giants.
2. "Every great automobile company - Mercedes, BMW, Volkswagen - is gearing up to go electric. Tesla is going to have some serious competition. Living up to the expectations of the stock price will be impossible." - Grantham said that Tesla stock is in a bubble.
3. "There's a bigger buy-in this time to the idea that prices never decline, and that all you have do is buy, than there has ever been. When the decline comes, it will perhaps be bigger and better than anything previously in US history." - Grantham warned that investors are more blindly optimistic today than they were before the Great Crash of 1929 or during the tech and housing bubbles.
4. "This is the first time that inflation, the number one predictor of a market downturn since 1925, is being ignored. Every bull market before this one had low inflation. In order to explain today's market, you have to assume 100% ignoring of the rising inflation, which is quite remarkable. We've never seen anything like this."
5. "The Fed hasn't done a thing right since Paul Volcker, who was brilliant. All of the other chairs have encouraged a series of really dangerous asset bubbles. They overstimulated to get to 2000, they overstimulated in the mid-2000s housing market, and have they learned? Absolutely not."
6. "Did you need to throw this much money all over the world so that it flows into the stock market and creates these meme stocks? This craziness that had Avis stock triple in one day? In response to Tesla and Hertz and Tom Brady, Avis said, 'Hey dudes, we're going to buy some electric cars too,' and wham, it triples." - criticizing central banks for overstimulating their economies during the pandemic and fueling rampant speculation.
7. "This is more extreme in scale and size of market cap than anything that occurred in 1929, even adjusted for the size of the economy."