Jeremy Grantham, founder of GMO, an asset management institution that has been predicting market bubbles for decades and frequently shouting that the US stock market is about to usher in an epic crash last year, issued a report on the 20th warning that the US stock market is in the fourth "super bubble" in the past 100 years, and the historic crash he predicted a year ago has begun.
In his report, Graham said he was confident that the bubble would burst like the Wall Street crash of 1929, the bursting of the Internet bubble in 2000, and the financial crisis of 2008, bringing major U.S. stock indexes back to statistically normal values and even falling further, which means that the S&P 500 index will fall nearly 45% from the 19th close and plunge 48% from the high of January 4 to the level of 2500 points.
Graham believes that the US stock market has ushered in a fourth bubble
In response to his predictions, Graham told Bloomberg:
A year ago, my view of this bubble was not as certain as I was about the 2000 tech bubble, or Japan, or the 2007 housing bubble, and I used to think that the possibility was high, but it may not be very certain, but today, I think it is almost certain.
Graham cites plenty of evidence that the earliest signs of the end of the bubble came last February, when dozens of speculative stocks began to fall, cathie Wood's Ark Innovation ETF fell 52% since then, and the Russell 2000 index outperformed the S&P 500 last year, which is usually a bull market because its constituents are predominantly mid-cap.
Graham also mentioned the factor of "crazy investor behavior", indicating that the bubble has entered its late stages, such as the meme stock and electric vehicle stock mania, the rise of absurd cryptocurrencies such as Doge, and the multi-million dollar boom in NFT prices.
In his report, Graham warns:
The super bubble is fully formed, and a storm could come at any time. When pessimism returns to the market, we may face the biggest shrinkage in wealth in U.S. history.
Graham believes that this crash may be comparable to the impact of the double collapse of the Japanese stock market and real estate market in the late 1980s, not only the stock market has a super bubble, but also a bond market bubble, global real estate has the "most extensive and extreme" bubble in history, and commodity prices have also appeared "early bubble", he believes that if not completely return to the level of statistical trend, the loss of the United States alone may reach $35 trillion.
Criticize the Joint Board of Governors
Graham blamed the bubbles of the past 25 years on the Poor Monetary Policy of the FEDERAL. He believes that since Alan Greenspan became the chairman of the Board, the RBI's efforts to release water first and then bail out the market in the event of a market correction have contributed to a series of bubbles.
However, Graham pointed out that today, the US inflation rate, which is at a high level in nearly 40 years, has greatly limited the ability of the BBI to stimulate the economy by cutting interest rates or buying assets, and the ability of the BBI has been severely weakened.
Graham finally offered his own investment proposal, arguing that the protection that a traditional 60/40 portfolio could provide was minimal, suggesting selling U.S. stocks, focusing on lower-valued stocks in Japan and emerging markets, hedging, holding some gold and silver, and having cash ready, waiting for prices to become attractive again for asset allocation.
The total market capitalization of the cryptocurrency fell below $2 trillion
It is worth noting that the US stock market has recently been highly linked to Bitcoin, and according to the previous report of the Moving Zone, the 100-day correlation coefficient between Bitcoin and the Nasdaq 100 Index has climbed to more than 0.40, which is one of the highest levels since 2011. A factor of 1 means that the movements are synchronized, and -1 means that the movements are reversed.
CoinGecko data shows that the total market capitalization of the current cryptocurrency market has fallen below $2 trillion to $1.93 trillion, down more than 37% from the $3.08 trillion peak set in November last year. Bitcoin currently accounts for 38% of the market capitalization and Ethereum has a market capitalization ratio of 17.6%.
The total market capitalization of the cryptocurrency market
The cryptocurrency field also suffered another setback on the 20th. The U.S. Securities and Exchange Commission (SEC) formally rejected the bitcoin spot ETF application of First Trust Advisors and SkyBridge on the 20th, on the grounds that such ETFs could not meet the requirements of preventing fraud and manipulation.