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Jeremy Grantham says US market is now in bubble phase

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
tikunetih
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Re: Jeremy Grantham says US market is now in bubble phase

#381365

Postby tikunetih » January 27th, 2021, 8:44 pm

Sorry, distracted by cooking and so missed off part of the final sentence:

and think carefully about your true investment horizon and thesis....


...and, if that investment thesis/horizon is much longer term than that of many other holders, consider the drawdowns you may need to endure should that speculative interest withdraw.

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Re: Jeremy Grantham says US market is now in bubble phase

#381775

Postby tikunetih » January 29th, 2021, 12:01 am

GrahamPlatt wrote:A very thoughtful & thought provoking take on the state of the US/planetary economy

https://youtu.be/RYfmRTyl56w


Back to this interview. IMO the only question that JG missed a beat on a little was in response to that regarding growing inequality...

JG focused on the impact of rising valuations (ie. multiple expansion) delivering a wealth effect / capital appreciation to exiting holders (older people) with the automatic consequence of diminishing future returns for new holders (younger people). I'd have also liked him to have mentioned the secular decline in the labour (wage) share of national income that's occurred since the 1970s:
https://fred.stlouisfed.org/series/W270RE1A156NBEA

...labour's loss being capital's gain, of course, as shareholders have captured an ever larger slice of the profit pie. This is a very big deal IMO.


I strongly suspect that this issue lies behind many issues and much of the dissatisfaction and strife we see within developed nations (western societies) today, causing people to be drawn to ever more radical notions and ideologies, when what might well have prevented much or all of this frustration would simply have been widespread (materially) higher - and rising - real incomes.

There are perhaps numerous reasons for this decline in the labour share of income, including globalisation and technology; whatever the drivers I suspect that if it continues then at some point we could eventually see our societies truly fracture in a modern day peasants' revolt that likely won't be much good for anyone, rich or poor...

Being an optimist, I'm hopeful though that this decline in the labour share of income can be stemmed and begun to be reversed in the coming years.

Now, higher and rising wages would reduce profit margins and thus profits, all other things being equal. However, optimistically I'd hope that higher wages would in turn drive higher consumption and thus greater business revenues, such that profitability could increase despite the margin compression. ie. Capital would receive a smaller proportion but of an enlarged pie.

Furthermore, this might prove beneficial to delivering some sustained modest inflation, stemming the disinflationary forces that have brought us to beyond-ZIRP, together with all the issues flowing from that. Sustained modest inflation would be key to diminishing (in real terms) the large quantities of govt debt that's been accumulated, not least in response to Covid, without us feeling the need to risking embracing even more radical but potentially dangerous policies.


An investment theme that's understandably gained popularity over recent times is the secular middle class-ification of emerging/developing economy populations, fuelling strongly growing consumption of all sorts of goods and services in those nations for decades to come...

Contrast this outlook to that in developed (western) nations, where our middle classes - unless unusually skilled within a high value niche - have begun to find themselves as just the latest in line facing the prospect of stagnant or declining real wages: first it was the labourers and unskilled, then the skilled, then the professionals. The young, even if reasonably successful in their career, perhaps face a future worse off in real terms than their parents were. Not a great situation, breeding dissatisfaction, resentment, strife, and instability.

Something as superficially unradical as rising real wages and a larger share of national income going to labour is thus my prescription: a more cohesive society, more stable public finances and more sustainable long term equity growth. Perhaps it can or will happen of its own accord, or perhaps politicians need to give it a nudge or three. Hopefully, any nudges will be reasonably well calibrated, and the bumps not too great.

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Re: Jeremy Grantham says US market is now in bubble phase

#381789

Postby GoSeigen » January 29th, 2021, 7:57 am

tikunetih wrote:
GrahamPlatt wrote:A very thoughtful & thought provoking take on the state of the US/planetary economy

https://youtu.be/RYfmRTyl56w


Back to this interview. IMO the only question that JG missed a beat on a little was in response to that regarding growing inequality...

JG focused on the impact of rising valuations (ie. multiple expansion) delivering a wealth effect / capital appreciation to exiting holders (older people) with the automatic consequence of diminishing future returns for new holders (younger people). I'd have also liked him to have mentioned the secular decline in the labour (wage) share of national income that's occurred since the 1970s:
https://fred.stlouisfed.org/series/W270RE1A156NBEA

...labour's loss being capital's gain, of course, as shareholders have captured an ever larger slice of the profit pie. This is a very big deal IMO.


Okay, I know it's my hobby horse, but this is the best start to a TLF post for a long time -- don't think I'll read the rest because it might spoil the satisfaction of the first few lines ;-).



Some of us were raising this issue on TMF in the period leading up to 2010, but we all know what happened that year and the altered priorities. In the absence of voluntary action by baby boomers and their proxies I predicted a drift towards extremism (the seeds of which were already evident in 2010) and eventually revolution or war.

I don't think these risks have diminished. I mean, it's amazing to see Congress overrun by a bunch of racist loons egged on by the US president -- and most of the Reps are completely okay with it. I think it's a warning sign of deep instabilities. Sadly I doubt Biden and the Dems will be able to address them adequately.

Incidentally after the GFC I also called for tough action to reign in large multinational corporations which have disproportionate power and to support small companies and entrepreneurs. Instead what we got in the UK was Brexit and the slaughter of a large swathe of small UK businesses trading in the EU and no doubt an invitation of US and Chinese corporations to take an even larger stake. Meanwhile trade protectionism is a new and growing trend.

This all needs to be fed into the political risk aspect of investors' calculations.


Returning to Grantham I'd say we're early in a "bubble" if there is one at all, but he's more likely to be right than me I suppose. I just see very few signs of the excesses of great bubbles except in certain sub-sections of the market.

GS

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Re: Jeremy Grantham says US market is now in bubble phase

#381800

Postby TUK020 » January 29th, 2021, 9:02 am

tikunetih wrote:There are perhaps numerous reasons for this decline in the labour share of income, including globalisation and technology; whatever the drivers I suspect that if it continues then at some point we could eventually see our societies truly fracture in a modern day peasants' revolt that likely won't be much good for anyone, rich or poor...

Being an optimist, I'm hopeful though that this decline in the labour share of income can be stemmed and begun to be reversed in the coming years.


As machine learning and AI become more widespread, do you think this is realistic?
tuk020

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Re: Jeremy Grantham says US market is now in bubble phase

#382011

Postby Bubblesofearth » January 29th, 2021, 4:46 pm

Strikes me Grantham is wanting to put the cork back in the bottle when he talks about capitalism. A return to 60's corporate socialism isn't going to happen on its own, not while any company attempting it will be instantly outcompeted by those that don't. Regulation could force it but the history of Government intervention isn't promising, road to hell and all that. In any event there's a big difference between companies wanting to be responsible and being forced in that direction.

US bubble maybe but it's very stock specific. When you look at the earnings of the biggest tech stocks like Apple then stretched valuations maybe but not bubble territory yet. Bitcoin probably but I get the sense he understands it about as well as I do. Emerging market value stocks seems to be his main pick. Having said that I'm no longer sure what these are any more. Seems to me there are just as many of these types of stocks in the dear old FTSE100 these days! How much longer do we have to underperform before we can be considered to be (re)emerging?

He talks about green investing but this is hardly an unknown. Presumably it would include Tesla which, by his own reckoning, is bubbly? As usual it will be about lucking out on the right stocks.

BoE

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Re: Jeremy Grantham says US market is now in bubble phase

#384311

Postby Leif » February 6th, 2021, 9:17 pm

One of the biggest problems we have is the divisive nature of social media, which feeds each person with information based on their likes and reinforces their prejudices. People no longer see a balanced picture, instead they tend to see the world as they want to see it. When once we saw the internet as a great educator, we now see that people turn away from news created by trained journalists employed by organisations overseen by regulators (imperfectly of course), and turning to anonymous sources posting on Facebook, YouTube and elsewhere.

Conspiracy theories run amok. Large numbers believe in alien lizards, and 5G masts spreading covid 19. The loonies are running the asylum. Facebook is amoral, caring only for increasing its advertising revenue. China and Russia spend a fortune spreading fake news stories, to create distrust in authority and government. Many believe covid was created in a US laboratory.

And then there are supposed human rights groups with a far left agenda, doing all they can to make us believe that Western countries are evil, and have committed atrocities for centuries. The squeaky wheel gets all the attention.

Bill Gates is spending a fortune on philanthropic works, and yet conspiracy theorists say he is using covid to inject tracking chips into us. George Soros is also the target of this wacko nonsense.

My main concern is war with China which is looking more and more likely, not full scale, but an invasion of Taiwan, or annexation of the South China Seas.

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Re: Jeremy Grantham says US market is now in bubble phase

#472101

Postby hiriskpaul » January 11th, 2022, 4:21 pm

1 year into JG's bubble phase. S&P 500 total return (in USD) 5 Jan 2021 to 5 Jan 2022 was 26%.

Let's see how big the bubble gets before it pops. As with last year I have no plans to reduce my allocation to US shares.

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Re: Jeremy Grantham says US market is now in bubble phase

#472102

Postby Lootman » January 11th, 2022, 4:24 pm

hiriskpaul wrote:1 year into JG's bubble phase. S&P 500 total return (in USD) 5 Jan 2021 to 5 Jan 2022 was 26%.

Let's see how big the bubble gets before it pops. As with last year I have no plans to reduce my allocation to US shares.

I will go one better. If the US market declines I will buy more. In fact I was nibbling at the end of last week in some areas.

As the old Merrill Lynch ads used to say: "Never bet against America".

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Re: Jeremy Grantham says US market is now in bubble phase

#472109

Postby hiriskpaul » January 11th, 2022, 4:47 pm

Lootman wrote:
hiriskpaul wrote:1 year into JG's bubble phase. S&P 500 total return (in USD) 5 Jan 2021 to 5 Jan 2022 was 26%.

Let's see how big the bubble gets before it pops. As with last year I have no plans to reduce my allocation to US shares.

I will go one better. If the US market declines I will buy more. In fact I was nibbling at the end of last week in some areas.

As the old Merrill Lynch ads used to say: "Never bet against America".

Good point. If there is a big fall, I would probably buy as well. It would probably need to be more than a 20% fall to interest me though.

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Re: Jeremy Grantham says US market is now in bubble phase

#472110

Postby Lootman » January 11th, 2022, 4:50 pm

hiriskpaul wrote:
Lootman wrote:
hiriskpaul wrote:1 year into JG's bubble phase. S&P 500 total return (in USD) 5 Jan 2021 to 5 Jan 2022 was 26%.

Let's see how big the bubble gets before it pops. As with last year I have no plans to reduce my allocation to US shares.

I will go one better. If the US market declines I will buy more. In fact I was nibbling at the end of last week in some areas.

As the old Merrill Lynch ads used to say: "Never bet against America".

Good point. If there is a big fall, I would probably buy as well. It would probably need to be more than a 20% fall to interest me though.

In general, yes. Late last week I was nibbling at a few US shares that had come down a lot but look like long-term winners e.g. Crowdstrike, Snowflake and Roblox. They were all down by 20% or more!

In fact Crowdstrike is already up 10% from my buy price a few days ago.

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Re: Jeremy Grantham says US market is now in bubble phase

#472115

Postby hiriskpaul » January 11th, 2022, 4:58 pm

Lootman wrote:
hiriskpaul wrote:
Lootman wrote:
hiriskpaul wrote:1 year into JG's bubble phase. S&P 500 total return (in USD) 5 Jan 2021 to 5 Jan 2022 was 26%.

Let's see how big the bubble gets before it pops. As with last year I have no plans to reduce my allocation to US shares.

I will go one better. If the US market declines I will buy more. In fact I was nibbling at the end of last week in some areas.

As the old Merrill Lynch ads used to say: "Never bet against America".

Good point. If there is a big fall, I would probably buy as well. It would probably need to be more than a 20% fall to interest me though.

In general, yes. Late last week I was nibbling at a few US shares that had come down a lot but look like long-term winners e.g. Crowdstrike, Snowflake and Roblox. They were all down by 20% or more!

In fact Crowdstrike is already up 10% from my buy price a few days ago.

I have little interest in buying individual shares any more, just the S&P. One exception, I might buy more Berkshire Hathaway.

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Re: Jeremy Grantham says US market is now in bubble phase

#472217

Postby NotSure » January 11th, 2022, 9:37 pm

tikunetih wrote:(in Jan 2021)

Grantham is an excellent communicator.

I particularly enjoyed his description of the end stages of the 2000 tech bubble, and recall it exactly as he describes it: individual cohorts of bubble stocks, starting with the most speculative garbage first, being taken out and shot one by one over many months, a process almost entirely ignored by the remaining cohorts until they eventually became "next" in line to be shot....


While selling, say, an S&P tracker a year ago would have proved an expensive mistake, the post above caught my attention.

Parallels in the Nasdaq: 40% of stocks are now 50% off their 52-week high.....

https://www.telegraph.co.uk/business/2022/01/11/turmoil-tech-stocks-means-markets-may-have-finally-peaked/

...For some investors, the damage is already done. Underlying the Nasdaq’s recent downturn after extreme slumps, nearly 40pc of its stock are off their 2021 peaks by 50pc or more....


I'm about 45% US stock (mainly market cap weighted - passive), so a little underweight, but happy at that level. I have noticed my 'satellite' holdings in more 'adventurous' active funds (e.g. BG stable) have struggled of late, and my small ISA holding of Vanguard UK Equity Income fund (basically a HYP) has done rather well. As an 'unsophisticated' investor, I'd be pretty worried if I was within say 5 years of retirement, but as I've somewhat longer, a decent correction would be nice - I'd lose short term as fully invested (with a few bonds in passive mixed-asset funds), but accumulating at historically more 'normal' valuations would offset this. I do agree with those who question using historical measures to predict the future though, e.g. comparing US GDP (measured in $/year) with market caps of basically global companies (measured in $) is not necessarily very helpful.

(p.s. I talk in terms of markets not companies as most of my equity holding are in a company pension scheme that does not allow individual company shares)

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Re: Jeremy Grantham says US market is now in bubble phase

#475825

Postby hiriskpaul » January 24th, 2022, 6:48 pm

JG's at it again, maybe he will be right this time? (S&P currently in 10% correction territory):

https://www.gmo.com/europe/research-lib ... pus-begin/

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Re: Jeremy Grantham says US market is now in bubble phase

#475837

Postby scrumpyjack » January 24th, 2022, 7:21 pm

hiriskpaul wrote:JG's at it again, maybe he will be right this time? (S&P currently in 10% correction territory):

https://www.gmo.com/europe/research-lib ... pus-begin/


Possibly, a stopped clock is right twice a day! He loses some credibility when he was saying all this a year ago.

It needs a return to 'normal' interest rates to really collapse share prices. That may happen as governments try to deal with the inflation cat they have let out of the bag.

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Re: Jeremy Grantham says US market is now in bubble phase

#475853

Postby BT63 » January 24th, 2022, 8:34 pm

hiriskpaul wrote:JG's at it again, maybe he will be right this time? (S&P currently in 10% correction territory):

https://www.gmo.com/europe/research-lib ... pus-begin/


He will eventually be worryingly right; central bankers have spent the last two decades building up to it with very loose monetary policy.
The longer the bubbles go on the more painful the ultimate bursting will be. My crystal ball suggested that the bubble would probably peak some time between Q4 2021 and Q2 2022, coinciding with Fed rate rises and tapering.

In real terms, the US stock market will probably be lucky to achieve zero annual average real return over the next decade. Statistical analysis points to a 90% probability of a negative annual average real return with a range of outcomes between +3% to -11% p.a., and a median around -4% p.a. average real return over the next decade.

However, it's not all doom and gloom for stock markets. UK shares look reasonable value for money and statistically look likely to offer several percent more p.a. than US shares over the next decade.
Also the shares of many other nations don't look nearly as overstretched as the US. What we have is mostly a US bubble, reminding me of what was mostly a Japan bubble in the late 1980s.

I also like gold and its miners because I think once the Fed's current tightening causes enough of a stock market wobble, the Fed will panic and try to pump it back up again, given essential role of rising stock markets in the wealth effect and US consumer spending.
To try to pump it back up they'll probably ramp up QE to a level that is unimaginable despite the inflationary consequences and if the Fed do revert to massive QE and ZIRP I think gold and its miners will go ballistic as they did in the 1970s.

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Re: Jeremy Grantham says US market is now in bubble phase

#475858

Postby AsleepInYorkshire » January 24th, 2022, 8:44 pm

As interest rates rise in the US it's possible, even probable that the Chinese will start to feel some pain. There will come a point when they need to reduce their selling prices and "bingo" down comes the US inflation rate.

AiY(D)

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Re: Jeremy Grantham says US market is now in bubble phase

#475895

Postby GoSeigen » January 25th, 2022, 6:19 am

BT63 wrote:To try to pump it back up they'll probably ramp up QE to a level that is unimaginable despite the inflationary consequences and if the Fed do revert to massive QE and ZIRP I think gold and its miners will go ballistic as they did in the 1970s.


Always amazes me how history didn't exist before 1970 when it comes to inflation.

The previous "ZIRP" was in the 1930s and 1940s, not the 1970s. By the '70s CB policy rates were pretty high.

GS

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Re: Jeremy Grantham says US market is now in bubble phase

#475911

Postby vand » January 25th, 2022, 8:53 am

Grantham's recent interviews across various media outlets were brilliant, and for anyone who think that valuations still matter it's difficult to argue against his stance on the silliness, sentiment and prices in the markets in the last 18 months.

Howeer, just a warning that, like many others, he's called "bubble" on US stocks all the way back around 2012-13 and if you had listened to him back then you would probably have missed out on one of the greatest stretches of market growth in history. So, no one knows what is going to happen.

I agree that the US markets in particular are at least as overpriced as they were at the dotcom peak, but remember that valuation only explains about 40-50% of forward 10yr returns. It is not impossible that stocks can continue to do well, especially when you consider how political the US stock market has become as a barometer of the economy and, by extension, the success of US Government policy.

I do also believe that there is something about the US that means it continually manages to outperform expectation and is not captured in any model. Put simply, they do capitalism better, so while they have their booms and busts like anyone else, they are great at innovating and finding new ways to grow and create long term wealth. The rest of the world rides on their coat tails in this regard.

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Re: Jeremy Grantham says US market is now in bubble phase

#475913

Postby BT63 » January 25th, 2022, 8:57 am

GoSeigen wrote:
BT63 wrote:To try to pump it back up they'll probably ramp up QE to a level that is unimaginable despite the inflationary consequences and if the Fed do revert to massive QE and ZIRP I think gold and its miners will go ballistic as they did in the 1970s.


Always amazes me how history didn't exist before 1970 when it comes to inflation.

The previous "ZIRP" was in the 1930s and 1940s, not the 1970s. By the '70s CB policy rates were pretty high.

GS


I'm not sure what you mean, but gold and its miners did well in the 1930s, 1970s, and the 2000s bears. I expect them to do well again whether the Fed deflates the bubbles or reinflates them.
The Fed is stuck between inflation or a long deep bear market. They might well end up with both.

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Re: Jeremy Grantham says US market is now in bubble phase

#475914

Postby BT63 » January 25th, 2022, 8:59 am

vand wrote:Grantham's recent interviews across various media outlets were brilliant, and for anyone who think that valuations still matter it's difficult to argue against his stance on the silliness, sentiment and prices in the markets in the last 18 months.

Howeer, just a warning that, like many others, he's called "bubble" on US stocks all the way back around 2012-13.


I think JG is correct; the current bubble began around 2012 and is when the Fed could have gradually ceased QE and worked to gradually normalise rates.
Now the Fed is unable to end QE unable to significantly raise rates because of the probability of popping the large bubbles it has created.


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