The Mother of All Market Bubbles Revisited

Famed investor/market analyst Jeremy Grantham explained that all asset classes and markets revert to their mean valuation from their highs and lows.

They nearly always overshoot on the way up and down, what’s been happening in the US for some time.

Retired from active investing after half a century, Grantham still shares his market wisdom through occasional commentaries.

His latest on January 20 is titled: “Let the Wild Rumpus Begin” — near the end of simultaneous stocks, bonds, commodities and housing bubbles.

What he called “3-sigma or greater super-bubbles” only occurred three previous times:

In 1929 and 2000 in the US and Japan in 1989.

There were housing super-bubbles in the US and Japan earlier — in 2006 and 1989 respectively.

Like all previous bubbles, especially super-ones, Grantham left no doubt about what’s coming. 

It’s just a matter of time before the dam bursts like always before in market history.

In the US today, “we are in the fourth super-bubble of the last hundred years,” he stressed.

“Previous equity super-bubbles had…distinct features.”

Their characteristics occurred in the current one.

All hell could break loose for any reason at any time, a pattern best understood in hindsight.

When bubbles burst, especially super-ones, enormous amounts of wealth are wiped out swiftly.

Because money printing madness by the Fed caused multiple markets to way over-inflate for years, a major downside lies ahead.

Previous bubbles and super-ones “corrected all the way back to trend with much greater and longer pain than average,” said Grantham.

Valuations of super-bubbles, notably the current one, advanced at “two or three times the average speed of the full bull market.”

The final feature of super-bubbles “has been a sustained narrowing of the market and unique underperformance of speculative stocks, many of which fall as” blue chips rise.

What happened in 1929 and 2000 is happening now in the US.

Especially since 2019, “crazy investor behavior in spades” characterized US market action.

It exceeded the manic top of the 2000 dot.com super-bubble.

The “checklist for a super-bubble running through its phases is now complete and the wild rumpus can begin at any time,” Grantham warned, adding:

What’s different this time — that’s only comparable to 1980s Japan — “is the extraordinary danger of (simultaneous super-bubbles occurring at the same time), as we see today…” 

“(T)hree and a half major asset classes (are) bubbling simultaneously for the first time in history.” 

“When pessimism returns to markets (as will best understood in hindsight), we face the largest potential markdown of perceived wealth in US history.”

Forewarned is forearmed — especially for elderly investors with less time to recoup losses if occur than younger ones.

In the last 100 years, there have been over 300 2-sigma bubbles, Grantham explained.

They all reverted to trend when market pessimism replaced optimism.

When markets are most extreme as in recent years, bubbles exceed 2-sigma events — to what Grantham calls 3-sigma super-bubbles.

At all levels, they all revert to trend.

“(T)wo things are true, he explained:

“(T)he higher you go, the lower the expected future return.”

“You can gorge on your cake now or enjoy it piece by piece into the distant future, but you can’t do both.”

“(T)he higher you go, the longer and greater the pain you will have to endure to get back to trend.”

That’s how previous bubbles deflated.

Because of unprecedented super-bubbles occurring simultaneously, “loss of value can cause a shock through the wealth effect that can get out of control.”

It happened in 1929 and Great Depression decade that followed.

It’s “much more dangerous to have a bubble in housing, and it is very much more dangerous to have both (a housing and equities super-one) together,” Grantham stressed.

Over three decades after Japan’s twin super-bubbles burst, the “economic consequences are…still playing out,” he explained.

Along with an equities super-bubble in the US, there’s “the broadest and most extreme global real estate bubble in history.” 

“Today houses in the US are at the highest multiple of family income ever.” 

At the same time, “the highest priced bond markets” exist in the US and other countries and lowest interest rates.

Compounding a bad situation, oil and most metals markets are in bubble territory.

So are food prices — what everyone who eats understands well.

The above combination is “all but guaranteed to (cause) major (protracted) economic pain” when markets go negative as always happens when things spin out of control like now.

A Final Comment

The Wall Street owned and controlled Fed bears full responsibility for creating market bubbles and super-bubbles.

It made trillions of dollars available for speculative excess at zero interest rates.

Along with Bank of America, Wells Fargo, and Citigroup, the largest US bank, JP Morgan Chase, bear most responsibility for what’s gone, as well as economic and financial wreckage to follow. 

On January 21, Wall Street on Parade’s Pam and Russ Martens explained the following:

Despite admitting to multiple criminal felony offenses of market-rigging for years, JP Morgan Chase rewarded its chairman and CEO Jamie Dimon by making him a billionaire.

According to the Martens:

“The Board of JPMorgan Chase seems to have adopted a compensation model based on ‘the more felony counts, the bigger the paycheck,’ ” the greater the overall compensation for its head crook.

The above reality applies in similar fashion to Wall Street across the board, Pharma, weapons makers, and other corporate predators.

It’s at a time when one-fourth of working-age Americans are jobless and inflation exceeds 15% as it continues spiraling higher.

It’s also at a time when the vast majority of working-age Americans earn poverty or sub-poverty wages with few or no benefits.

US wealth continues to be transferred from its ordinary people to the nation’s super-rich in record amounts.

The nation’s ruling class is at war with segments of society it wants exterminated at home and worldwide.

It wants the remnants of greatly eroded freedoms eliminated altogether. 

What it calls “democracy” is only for its privileged few at the expense of most others at home and abroad.

No nation in world history inflicted more harm on more people over a longer duration than the US.

The worst of what it has in mind likely lies ahead if its war on Russia by other means turns hot.

The same reality applies to its homeland war on the vast majority of Americans.

If it isn’t challenged and stopped once and for all, the USA will resemble the worst of Dante’s hell.

One thought on “The Mother of All Market Bubbles Revisited

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  1. “No nation in world history inflicted more harm on more people over a longer duration than the US.”

    >>> True. The majority of us do not know this, and are under the impression that those who live in non-vassal countries “hate us for our freedom”, as George W. Bush put it.

    1929 was a housing market bubble too, btw. According to Wikipedia, there was basically 1 guy behind it more than anyone else; Charles E Michell. ” In November 1929, U.S. Senator Carter Glass said, “Mitchell more than any 50 men is responsible for this stock crash.” Michell was the head of the company that eventually became Citibank. And no, he wasn’t a Jew. (… everybody stops reading here, probably.)

    Backstory:
    In 1907, Stillman, then the bank’s chairman, would intervene, along with J. P. Morgan and George Fisher Baker, in the Panic of 1907. Citibank pressured the US gov’t to occupy Haiti, and they did. Citibank imposed a 30 million USD loan on the Haitian transforming Haiti into an “American slave colony”.

    National City Bank became the first U.S. national bank to open an overseas banking office when it opened a branch in Buenos Aires, Argentina, in 1914. Many of Citi’s present international offices are older; offices in London, Shanghai, Calcutta, and elsewhere were opened in 1901 and 1902 by the International Banking Corporation (IBC), a company chartered to conduct banking business outside the U.S., which was forbidden to U.S. national banks. In 1918, IBC became a wholly owned subsidiary and was subsequently merged into the bank. The same year, the bank evacuated all of its employees from Moscow and Petrograd as the Russian Civil War had begun, but also established a branch in Puerto Rico. By 1919, the bank had become the first U.S. bank to have $1 billion in assets.

    Charles E. Mitchell, also called “Sunshine” Charlie Mitchell, was elected president in 1921. In 1929, he was made chairman, a position he held until 1933. Under Mitchell, the bank expanded rapidly and by 1930 had 100 branches in 23 countries outside the United States. He went big on housing. But like any other Crapitalistic Bubble, that shit pops.

    Like

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