Jeremy Grantham: U.S. Stocks Pricey But Lack Of Euphoria Could Lead To Higher Markets

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Jeremy Grantham says, “the lack of crazy euphoria in the market today may mean the market could bump along versus seeing a precipitous, sudden decline.”

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Jeremy Grantham: U.S. Stocks Pricey But Could Avoid Major Decline


The easy part of that is the bubble collapsing historically in order to get the market to have a really major decline 50 percent in a couple of years you've needed to have plenty of in the pricing psychological energy we need people to buy into some fairly preposterous thinking. It's revealed from hindsight. Anyway so in ninety nine people believe it's a new golden era of the Internet. Greenspan described the Internet as driving away the dark clouds of ignorance 1929 you had the same kind of euphoria without euphoria and crazy faith without perfect fundamentals and an extrapolation that they'll go on forever. It's very hard to get a rapid decline of the kind that we had in 1929 and 2001 to some extent in the housing market of 0 7 and 8. And so that's the easy part. In other words we're probably not going to have a rapid decline unless we have a blow off blow off needs twice the rate of acceleration as normal main maintained for a little less than two years like 21 months and in cycles that has produced enough to be about 60 percent or more. And it looked like we could do that. And certainly by the end of January it looked very promising that by the end of January it was rising so fast that if it had covered another 10 points another 10 percent by the end of March it would have been up 60 in the final 24 months and that would have only been steady 150 on the S&P. If it moves slowly that 60 percent target moves on up.

So if it takes a full nine months it was 30 400 if it took 18 months from last December it was 30 700 and the chances of that happening are not as good today as they were back in December January. And the reason is that the uncertainty that is being produced by the administration on important issues like global trade has served to constantly rattle and make nervous the investors. Unusually this is balanced on the other hand by strong profit margins by rising profit margins the highest globally they have ever been by a synchronized reasonable global economy. So you have some good data on one hand and you have some nerve wracking input on the other. This is quite unusual to create a kind of nervous balance. So one percent forward 1 percent back 2 percent 4 2 percent back.

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