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15.11.2021 07:24 AM
Jeremy Grantham: US stocks in 'magnificent bubble'

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Investors and traders have recently been talking about a bubble in the US stock market. This bubble is expected to burst soon and affect not only the stock market but also the cryptocurrency market. Nevertheless, the US stock market is giving serious cause for concern. On the one hand, similar bubbles have collapsed before. It happened during the dot-com crisis in 2000 and the mortgage crisis in 2008. The same scenario is likely to play out again. The question is: Why are stock indices still on the rise if market participants are ready for a collapse? Because a collapse usually comes unexpectedly. In other words, the key stock indices continue to grow, which means that investments do not stop and investors keep making a profit. Consequently, why should they give up gains, if they can earn even more? Greed, to some extent, continues to push stocks, cryptocurrencies, and other assets upward. At the same time, when several big players realize that the time has come and begin to sell off assets, a downward trend will begin.

British investor Jeremy Grantham also says that equities in the US are in a "magnificent bubble. He is well-known for predicting the dot-com collapse and the 2008 meltdown of the real estate market. According to the investor, the current situation is worse than those in 1929 and 2000. There is a row of different factors and economic indicators that confirm such a possibility. For example, Wall Street's P/E multiple used to assess the market's growth potential is now at its highest level since 2000. This indicator shows how undervalued or overvalued companies are. It is also used to find profitable stocks and eliminate unprofitable ones. Accordingly, if the indicator is at its highest level, all US companies, stock indices, and the entire market are now overvalued. He also mentioned trillions of dollars invested in bitcoin or meme digital assets among such factors. "You might make a lot of money in a really short time, but recognize we are skating on very thin ice," Grantham summarized. Therefore, traders should be very cautious at the moment.

Paolo Greco,
Analytical expert of InstaForex
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