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The “superbubble” of equities, housing and commodities will eventually burst, says Jeremy Grantham.
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But the AI craze could keep stocks afloat for a few more quarters, he told the Wall Street Journal.
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Grantham’s GMO bet on trading assets and bet against expensive growth stocks.
There’s a massive bubble in asset prices, but the artificial intelligence craze could delay its inevitable collapse for a few more months, says Jeremy Grantham.
“We had a very complicated but fairly standard-looking super bubble, losing air in the traditional way, until this recent rally,” the market historian and co-founder of GMO told The Wall Street Journal recently.
“We’re trying to unravel a bubble, and we have a completely different one that’s popped up on a pretty narrow front,” he added.
Grantham diagnosed a “superbubble” spanning stocks, housing and commodities in January 2022. He said in September it was likely in its final stages and a historic crash appeared imminent. The S&P 500 and Nasdaq ended the year in the red, but are up 16% and 32% respectively this year.
One of the main reasons for their resurgence has been the buzz around AI. Chipmaker Nvidia’s share price has soared 190% this year, while Microsoft’s shares have soared more than 40% to record highs, in part because the software giant has invested billions of dollars in ChatGPT’s parent company, OpenAI. Other AI-exposed companies, including Tesla and Meta Platforms, also saw huge gains in the first half.
Grantham, who called the dot-com crash in 2000 and the implosion of the housing bubble in 2008, told the WSJ that the AI frenzy could fuel the broader stock market for a few more quarters. But he warned that would not prevent the super bubble from bursting. He warned last year that the S&P 500 could bottom below 2,500 points – a sharp drop of 44% from its current level.
If Grantham’s predictions are correct, GMO will benefit. He placed bets against several high-flying growth stocks and stocked up on high-value stocks he expects to shine in the years to come. The downturn will be a “wonderful generational opportunity to make money,” Ben Inker, the firm’s co-head of asset allocation, told the WSJ.
GMO also made bets on the struggling commercial real estate sector, which has been hit hard by the shift to remote working, higher borrowing costs and fearful banks pulling back on loans. For example, he bought bonds tied to the Bellagio Resort & Casino in Las Vegas, the WSJ reported.
Read the original article on Business Insider