Bubble Guru Jeremy Grantham Sees S&P 500 Crashing 30% or Even 50%

• The S&P 500 will most likely plunge by 30% and could even be cut in half, Jeremy Grantham says.
• The bubble expert said there would probably be a recession next year and house prices would slump.
• Grantham also dismissed bitcoin as an “elaborate scam.”

Jeremy Grantham said the S&P 500 was likely to crash by 30% and could nosedive by over 50%. He also said that US house prices would slump and that a recession would strike next year, and dismissed bitcoin as a con.

“Anything below 3,000 would make think that it was reasonable,” the veteran investor said about the benchmark stock index during the latest episode of Bloomberg’s “Merryn Talks Money” podcast. The S&P 500 would have to plunge by almost a third from its current level to reach the 3,000-point mark.

“I would not be amazed if it went to 2,000 on the S&P, but that would require a couple of wheels to fall off,” Grantham continued, implying stocks could plummet by as much as 53%.

“Wheels tend to fall off in the great bubbles’ unraveling, but it doesn’t mean they have to,” he continued. “But it would be unlikely not to get to something close to 3,000 points on the S&P.”

Grantham, the cofounder and long-term investment strategist of the asset manager GMO, is a bubble historian who’s known for making dramatic predictions. While he called the dot-com bust and financial crisis, the “superbubble” in stocks, housing, and commodities he diagnosed at the start of last year is yet to burst.

The markets guru said he was bearish on stocks because they were heavily overvalued and had historically returned 5% more than 30-year Treasurys, which seemed virtually impossible at their current levels. He underscored that the “Magnificent Seven” stocks — which include Apple, Tesla, and Nvidia — had accounted for virtually all of the S&P 500’s gain this year.

“The simple arithmetic suggests you’ll either have a dismal return forever, or you’ll have a nice bear market and then a normal return,” Grantham said. “The nice bear market will be hopefully less than a 50% decline, but it won’t be a huge amount less from the peak than 50% in real terms.”

Grantham also reeled off several reasons he expects the American economy to contract fairly soon: Consumers have virtually exhausted their pandemic savings, the moratorium on student-loan payments has ended, the leading economic indicators are deteriorating, corporate credit is tightening, and the US government faces the prospect of paying onerous amounts of interest on its record amount of debt.

“My guess is we will have a recession,” Grantham said. “I don’t know whether it will be fairly mild or fairly serious, but it will probably go deep into next year.”

ADVERTISEMENT

The value investor also said more than 40 years of rock-bottom interest rates had depressed mortgage costs and pushed up house prices in many countries. The Federal Reserve has now hiked rates from nearly zero to north of 5% since last spring in response to historic inflation, which has pushed US mortgages to two-decade highs of above 7%. Grantham said the steeper mortgage rates would “drive down” house prices.

Grantham also touched on cryptocurrencies, which he’s criticized harshly in recent years. “Bitcoin is, of course, an elaborate scam,” he said.