In a recent interview, British billionaire Jeremy Grantham, known for his expertise in major stock crashes, issued a stark warning about a burst bubble that he believes is looming over the US market.
Grantham, the co-founder of the investment management company GMO, emphasized that the current situation bears resemblance to the crises witnessed in 1929 and 2000.
Grantham had previously estimated an 85% likelihood of a stock market crash, but he has now downgraded that figure to 70%. Despite the decrease, Grantham remains convinced that a perfect storm for bubbles, such as asset prices, has been created, with the emergence of artificial intelligence (A.I.) acting as a delay for the market’s decline.
The billionaire investor highlighted that the US stock market has met the criteria of previous major bubbles, including long economic upswings, strong bull markets, and robust earnings, which were followed by sharp downturns. Grantham’s predictions have historically proven accurate, and he had anticipated an “epic” bubble due to extreme trading levels in various markets, such as housing, meme stocks, and bonds, which were eventually met with major corrections.
Grantham expressed worries about a mini-bubble in the tech industry, particularly in the AI sector. Although he scaled back his prediction of a bursting bubble to 70% due to the emergence of technologies like ChatGPT, Grantham stressed that A.I.’s impact remains uncertain and that the technology operates on a different timescale compared to the predicted near-future market decline.
While Grantham’s warnings underline potential risks for the US economy, the scramble of opinions surrounding the impact of AI and its ability to change market dynamics further complicates the outlook. Before the true effects of AI start to manifest, Grantham warns that the economy might experience a traditional bubble that loses air, a recession, and a decline in profit margins.