Jeremy Grantham's prediction was more frightening than his emergency call

Jeremy Grantham's call for a "super bubble" in the U.S. stock market has drawn market attention. Now that he wants to convey a more shocking and urgent message, his critics may find it harder to accept. In an interview with Bloomberg's "front row," the prominent value investor said the last 25 years of the "blonde" period is coming to an end and the world needs to prepare for future inflation, slowing growth and labor shortages.

Grantham, co-founder of Boston-based asset management firm GMO, said: "There's only a certain amount of cheap oil, cheap nickel, cheap copper, and we're starting to touch some of those boundaries. "Climate change is accompanied by major floods, severe droughts and higher temperatures — none of which has made agriculture easier." As a result, we will live in a world full of bottlenecks, shortages and soaring prices. ”

Grantham, 83, insists that it's all inevitable because with the scarcity of raw materials, baby boomers are retiring, birth rates are falling, emerging markets are maturing and geopolitical tensions are rising — all of which have been simmering for decades and are almost unstoppable.

Last week, Grantham described what he saw as just the fourth super bubble in U.S. history, reiterated the impending crash and suggested exiting U.S. stocks altogether. He predicted that the S&P 500 would fall by nearly 50 percent and said no intervention by the Fed could stop it.

A few days before the market turmoil, his predictions were timely.

Grantham argues that the excesses — and costs — of super-bubbles are a symptom of human tendencies to live undersubvision: the demand for loose money has pushed up asset prices and, as a result, exacerbated inequality, and is now causing losses in the form of economic pressures and social divisions.

Similarly, development in the last century in pursuit of a higher standard of living has led to poor soils, poisoned ecosystems and climate change, he said. That's why wildlife is disappearing, biodiversity is in danger, and human reproduction is slowing down.

"We've gone far beyond the long-term processing power of the planet," said Grantham, who runs a $1.5 billion foundation to protect the environment. "Nature is starting to fail. Finally, if we don't fix this problem, we will start to fail as well. ”

These views are likely to resonate with the environmentalists in Grantham. To his skeptics, he was already too much like a chicken.

For much of the past decade, Grantham has been skeptical of stock valuations and dismissive of the frenzy that accompanies the bull market. After his last emergency call, a post on Twitter listed warnings that his sky was falling, suggesting he made mistakes often and couldn't be taken seriously.

At GMO, which manages approximately $65 billion in assets, value has been a costly strategy for customers. Bloomberg data shows that only one of the nine equity funds with a five-year track record outperformed the MSCI World Index.

Since the stock market plunge was first predicted a year ago, Grantham has been preparing for the worst. At the Grantham Foundation, where venture capital investments are made in a variety of areas from renewables to carbon capture, he shorts the NASDAQ Composite and Russell 2000 as hedges.

Personally, he invested in GMO's so-called stock misalignment strategy, which also exploited shorts to profit from the narrowing valuation gap between cheap and expensive stocks.

Short positions are usually not part of Grantham's script. He said he targeted the Russell 2000 index because it had a "high density of non-profitable flake companies," while the NASDAQ index was because it also contained many unprofitable names.

Grantham said not selling is always an option. However, he noted that those who survived past crashes endured painful waits to make up for their losses: the Dow Jones Industrial Average in 1929 was 25 years, the Nasdaq Composite in 2000 was nearly 15 years, and 5 1/2 was the year of the S&P 500 in 2007.

"If you think you can live with it for 10 or 20 or even 30 years, please be my guest," Grantham said. "But history shows that many of you can't stand it."