Are We Approaching The Greatest Bubble Burst Ever?

VC Led SPACs, Bitcoin, r/WallStreetBets et al.

Dear friends,

Recently, Jeremy Grantham from GMO gave a stark warning that the next crash will rival 1929 and 2020! Here are some of the extracted points made by Mr. Grantham during his interview with Bloomberg (credits to Business Insider):

1. This bubble is more impressive even than 2000, which was the champion. About 80% of the value measures have this one higher. We'll be rather lucky to have this bubble last until May.

  1. This is not primarily an institutional bubble; this is an individual bubble. The individuals are absolutely crazy. They have expanded their share of the market trading, and they have really entered into the market with great enthusiasm for the first time in decades.

  2. I have to confess that I find it all exhilarating. I'm only concerned somewhat for the relatively new investors who get drawn into these things and then find out the hard way. I sympathize completely with these people out there enjoying this bubble, but they've always ended very badly, and I have no doubt this one will too.

  3. I'm not optimistic that anyone caught up in this wants to hear my advice and consequently would act on it. When you get into that excitement, mini frenzy, pretty hard to stop you with dry historical stories. 'That was then, this is now, baby! Get aboard. You don't understand. You dinosaurs don't get it.' Well, the trouble is we do get it, but there is no way I can persuade them. Just tread out the regular story, and one out of a hundred might listen. I will sympathize with them when they're cleaned out.

  4. We're a crazy marketplace full of irrational human beings who behave themselves 80% of the time and then 20% of the time totally freak out one way or the other.

  5. The market tops out when the last bull has put his last money in. There is a moment of maximum enthusiasm, and the next day there's plenty of enthusiasm but less than the previous day. So the buying pressure is released a little bit, like the famous water jets under the ping-pong balls. You turn the faucet down a little bit and the ball is still way up in the air, but it's just dropped a couple of inches. It's that process of slowly lowering the pressure, and the overpriced ping-pong ball slowly descends until it hits the proper level.

  6. Rapidly rising hostility to bears is a very good, very late signal that the bubble is way advanced. I gave my fairly bland opinion about bitcoin, just that it was faith-based, there's nothing new or shocking about that. But armies of individual fanatics descended on the comments. There was no insult that was not good enough for me, not just senility and old age and complete ignorance about bitcoin. I got three insults back about my big ears which I hadn't had since I was 7 years old.

  7. SPACs are terribly speculative, undesirable, unnecessary instruments. They're really a license to rip investors off. It's a testimonial to the sloppiness and slow-moving nature of the SEC that they haven't banned these things long ago.

  8. QuantumScape went from $10 to $130, where it was worth more than General Motors or Panasonic. That compares pretty well in scale with anything around in 1929 or 2000. To have a company that has no earnings or sales for four years, brilliant or not, and to look out that far into the future and make it worth more than General Motors, that's a pretty good demonstration of something. And it was wonderfully ironic, because by then I'd already been sounding off about the undesirableness of SPACs. And there I am with far and away, for a second or two, my biggest investment ever.

  9. I don't believe the banks are nearly as important as they would love us to believe. They managed to fake the majority of people in '09 into thinking they were so desperately important that if we didn't bail them all out, if we let a single banker go out of business, we'd be deep in 1932, in the Great Depression.

As of Friday, February 26, our signals suggest only a small probability of an imminent dramatic crash. However, we compute a high probability that there will be a significant market correction within the next 12 months based on certain conditions factored into our models. These include policy changes that we predict will happen as major Western economic powers such as the USA move towards a new post-COVID 19 fiscal policies and geopolitical realignment.


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