Grantham Calls Meme Investing ‘Biggest U.S. Fantasy Trip’ Ever

Investors are witnessing the “biggest U.S. fantasy trip of all time” in the stock market thanks to a clueless Federal Reserve, speedy stimulus and surprising success with Covid-19 vaccinations, according to Jeremy Grantham, financial historian and co-founder of the investment firm GMO.

It’s been just over a year since the last stock market crash, which resulted in a 35% drop from peak to trough, followed by the fastest rebound in history.

“The Covid crash is quite distinct from a classic long bull market ending,” he said. “As a sharp external effect, it was more like the 1987 technical crash caused by portfolio insurance: A short hit and a sharp recovery.” Of course, after Black Monday it took two years for the S&P 500 to return to where it was -- this year it took five months.

Right now, signs of a bubble are everywhere. Various measures of debt and margins are at peaks, trading volume is signaling bullish sentiment and volumes on call option volume and over-the-counter penny stocks are at records.

“The last 12 months have been a classic finale to an 11-year bull market,” Grantham said. “Checking all the necessary boxes of a speculative peak, the U.S. market was entitled historically to start unraveling any time after January this year.”

It’s particularly dangerous now because the bond, stock and real estate markets are all inflated together, Grantham added, noting that even commodity prices are surging.

“That trifecta-and-a-half has never happened before anywhere -- the closest before was Japan in 1989,” he said. “The consequences for the economy were dire and neither land nor stocks have yet returned to their 1989 peaks!”