Jeremy Grantham predicts US stocks will plunge and the economy will tumble into recession.
The GMO cofounder warns the surge in a wide range of assets could be dangerous.
Grantham anticipates stubborn inflation, and expects the Fed to struggle to curb price increases.
Jeremy Grantham warned US stocks could decline as much as 80% from their highs, rang the alarm on an imminent recession, and cautioned there could be painful fallout from the wider surge in asset prices.
The market historian and GMO cofounder also predicted stubborn inflation, and underlined the severity of the Federal Reserve's current challenges, in a CNBC interview this week.
Here are Grantham's 9 best quotes from the interview, lightly edited for length and clarity:
1. "The other day, we were down 19.9% on the S&P 500, and about 27% on the Nasdaq. At a minimum, we are likely to do twice that. If we're unlucky — which is quite possible — we would do three legs like that." (Grantham noted the stock-market decline could take a couple of years.)
2. "We should be in some sort of recession fairly quickly, and profit margins from a real peak have a long way that they can decline."
3. "Superficially, this bubble looks very much like 2000, focused on US tech. What I fear is that there are a couple of differences with 2000 that are more serious. What you never want to do in a bubble is mess with housing, and we're selling at a higher multiple of family income than we did at the top of the so-called housing bubble in 2006. The bond market recently had the lowest lows in the history of man, in 6,000 years of history. Energy has put up metal prices, and food prices are actually higher than they have ever been before in real terms."
4. "We are really messing with all of the assets, and this has turned out, historically, to be very dangerous."
5. "This kind of 2000 bubble that we have is dangerously likely to morph into the 1970s, where inflation is always a part of the background discussion, and where growth rate starts to dwindle away. You have shades of stagflation as we had in the 1970s, where commodities are intermittently scarce, price jags here and there, where the whole system is so strung out that it's lost its resilience."
6. "The Fed are completely hamstrung. They have to put inflation up at the top of the agenda, and that takes away pretty well all the ammunition that they had back in 2000 and in the housing bust." (Grantham highlighted the dangerous combination of very low interest rates, record levels of debt, and inflation.)
7. "This is starting way behind, so there's a lot of catch up to be done. I'm sure the Federal Reserve guys are waking up in the middle of the night sweating about this one." (Grantham was underscoring the disconnect between 8% inflation in the US, and interest rates near zero.)
8. "When inflation is around for a long time, you have to be reconciled to lower price-earnings ratios; that's what the history books say." (Grantham expects inflation to linger because declining birth rates across the developed world will lead to a shortage of labor over the next 15 years, driving up wages and putting pressure on resource supplies.)
9. "Everything was perfect for a while in the capitalist world, and now a lot of that perfection has begun to fade away."
Read more: Insider interviewed the CEOs of See's Candies, Dairy Queen, Borsheims, and Brooks Running during Berkshire Hathaway's annual meeting. They offered a look inside Warren Buffett's company, and shared how they're dealing with the pandemic and inflation.
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