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Jeremy Grantham says US market is now in bubble phase

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hiriskpaul
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Jeremy Grantham says US market is now in bubble phase

#374665

Postby hiriskpaul » January 8th, 2021, 10:55 am

https://www.gmo.com/europe/research-lib ... ast-dance/

The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble...

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Re: Jeremy Grantham says US market is now in bubble phase

#374670

Postby ReallyVeryFoolish » January 8th, 2021, 10:58 am

One day, he'll be 100 per cent correct. Now? No idea.

RVF

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Re: Jeremy Grantham says US market is now in bubble phase

#374674

Postby ReallyVeryFoolish » January 8th, 2021, 11:04 am

Remember Tony Dye, the notorious Dr Doom? Sacked a few days before he was right about a market crash.

https://www.independent.co.uk/news/obit ... 96811.html

RVF

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Re: Jeremy Grantham says US market is now in bubble phase

#374679

Postby hiriskpaul » January 8th, 2021, 11:11 am

ReallyVeryFoolish wrote:One day, he'll be 100 per cent correct. Now? No idea.

RVF

To be fair to him he does not call bubbles frequently, and his track record on previous bubbles has been good. He is very much a value investor though and if you had been following him over the last decade chances are you would not be happy.

Personally, I have been thinking about tilting some of my US stock allocation, which are mostly in cap weighted trackers, towards value. Bubble or not the difference in valuations between US growth and value have become very stretched.

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Re: Jeremy Grantham says US market is now in bubble phase

#374723

Postby ReallyVeryFoolish » January 8th, 2021, 12:38 pm

hiriskpaul wrote:
ReallyVeryFoolish wrote:One day, he'll be 100 per cent correct. Now? No idea.

RVF

To be fair to him he does not call bubbles frequently, and his track record on previous bubbles has been good. He is very much a value investor though and if you had been following him over the last decade chances are you would not be happy.

Personally, I have been thinking about tilting some of my US stock allocation, which are mostly in cap weighted trackers, towards value. Bubble or not the difference in valuations between US growth and value have become very stretched.

Yes, trouble is, as happened to Dye, none of us know just how stretched valuations can become before something snaps. It's dead easy in hindsight, without that the best I can do is be diversified and pragmatic through thick and thin. We live in the biggest monetary experiment ever conducted on planet earth.

RVF

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Re: Jeremy Grantham says US market is now in bubble phase

#374758

Postby tikunetih » January 8th, 2021, 2:11 pm

hiriskpaul wrote:Personally, I have been thinking about tilting some of my US stock allocation, which are mostly in cap weighted trackers, towards value. Bubble or not the difference in valuations between US growth and value have become very stretched.


A large factor rotation has been occurring over the past few months, esp. during the past week. If real bond yields rise in the year ahead, as I think probable, then this would deliver a further tailwind for lowly-rated value/cyclical stocks ("reflation trade"), as has been happening, and become a material headwind for the sky-high-multiple growth stocks.

The gargantuan policy response to Covid may, in-effect, have ushered in an era of quasi-monetary financing of govt spending / fiscal deficits. Biden's election is likely to cement this shift rather than reverse it. Recall, the Fed's remit changed to an "average inflation target" last August and we see frequent signals from it of a greater tolerance and a desire for inflation.

eg.
https://www.reuters.com/article/us-usa- ... KKBN29C2ZH

I suspect that the planets are very much aligning for, at bare minimum, a greater cyclical upswing in inflation than we've been used to seeing or than is generally anticipated; and quite possibly a sustained upswing in inflation over the medium term of a nature that markets have not experienced in a long time and that assets are not priced for currently.

Inflation expectations impact the pricing of everything, and unexpected inflation is one of the most significant risks to the price of many assets. Central banks may be unable or unwilling to cap rises in real bond yields, which may come to have a particularly large impact on high-multiple assets whose valuations were predicated on extrapolating low/negative real yields in perpetuity.

So market-wise, the future may look quite a bit different than we've been accustomed to for some time, and adjusting to this "regime change" might usher in more volatility than we're used to seeing and with more scope for large pricing shifts. After all, Covid aside, the past dozen years have really been pretty tranquil and an exceptionally easy environment for investors to make money in. Those whose investing careers/experience lies solely within that period and have not studied market history may be surprised.


NB my comments above are particularly focused on US markets as that's what I mainly look at. But the US/Fed do affect everything.

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Re: Jeremy Grantham says US market is now in bubble phase

#374806

Postby hiriskpaul » January 8th, 2021, 3:56 pm

tikunetih wrote:
hiriskpaul wrote:Personally, I have been thinking about tilting some of my US stock allocation, which are mostly in cap weighted trackers, towards value. Bubble or not the difference in valuations between US growth and value have become very stretched.


A large factor rotation has been occurring over the past few months, esp. during the past week. If real bond yields rise in the year ahead, as I think probable, then this would deliver a further tailwind for lowly-rated value/cyclical stocks ("reflation trade"), as has been happening, and become a material headwind for the sky-high-multiple growth stocks.

The gargantuan policy response to Covid may, in-effect, have ushered in an era of quasi-monetary financing of govt spending / fiscal deficits. Biden's election is likely to cement this shift rather than reverse it. Recall, the Fed's remit changed to an "average inflation target" last August and we see frequent signals from it of a greater tolerance and a desire for inflation.

eg.
https://www.reuters.com/article/us-usa- ... KKBN29C2ZH

I suspect that the planets are very much aligning for, at bare minimum, a greater cyclical upswing in inflation than we've been used to seeing or than is generally anticipated; and quite possibly a sustained upswing in inflation over the medium term of a nature that markets have not experienced in a long time and that assets are not priced for currently.

Inflation expectations impact the pricing of everything, and unexpected inflation is one of the most significant risks to the price of many assets. Central banks may be unable or unwilling to cap rises in real bond yields, which may come to have a particularly large impact on high-multiple assets whose valuations were predicated on extrapolating low/negative real yields in perpetuity.

So market-wise, the future may look quite a bit different than we've been accustomed to for some time, and adjusting to this "regime change" might usher in more volatility than we're used to seeing and with more scope for large pricing shifts. After all, Covid aside, the past dozen years have really been pretty tranquil and an exceptionally easy environment for investors to make money in. Those whose investing careers/experience lies solely within that period and have not studied market history may be surprised.


NB my comments above are particularly focused on US markets as that's what I mainly look at. But the US/Fed do affect everything.

Much of what you say chimes with Grantham, but I cannot see much evidence for a "Large Factor Rotation" having occurred. Do you have a link?

For example, compare the Vanguard Growth ETF VUG against the Value ETF VTV. over the last 3 months VTV is a little ahead, but not by much. Over the year Growth has trounced value (34% vs 1%), accelerating a trend started the previous year. 33% is an unusually large spread.

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Re: Jeremy Grantham says US market is now in bubble phase

#374817

Postby ReallyVeryFoolish » January 8th, 2021, 4:08 pm

For the UK, the FTSE sits significantly lower than twenty years ago. Never mind in real terms. Will the UK ever get to play "catch up"? There's no bubble in the UK, is there?

RVF

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Re: Jeremy Grantham says US market is now in bubble phase

#374874

Postby hiriskpaul » January 8th, 2021, 5:43 pm

ReallyVeryFoolish wrote:For the UK, the FTSE sits significantly lower than twenty years ago. Never mind in real terms. Will the UK ever get to play "catch up"? There's no bubble in the UK, is there?

RVF

No, this is very much a US issue.

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Re: Jeremy Grantham says US market is now in bubble phase

#374877

Postby tikunetih » January 8th, 2021, 5:50 pm

hiriskpaul wrote:I cannot see much evidence for a "Large Factor Rotation" having occurred. Do you have a link?


I was intending to signal that you're probably on the right track not that you'd missed the boat.

I think this rotation began a month or more prior to the US election, in anticipation of the result (fiscal policy) + vaccines, eg.
mid-Oct: https://youtu.be/qU3otHtpseQ?t=77
mid-Nov: https://www.bloomberg.com/news/videos/2 ... says-video

A lot of the rotation may have been into small cap though:
Mid-Dec: https://www.syfe.com/magazine/a-closer- ... -rotation/

Now:
https://www.ft.com/content/da72d8b4-de1 ... 01097b0bb3
"All three leading benchmarks on Wall Street hit record highs on Thursday, with a broad range of sectors advancing.

“Value” stocks — shares judged to be cheap against their earnings or assets — have performed particularly well.

“Value plays are really working very well in this first week,” said Nadège Dufossé, head of cross-asset strategy at Luxembourg-based fund manager Candriam. The environment is “more constructive for risky assets and for the reflation trade”, she added.

I've no idea the extent to which any of this has been captured by the ETFs you mention, presumably not much from your comment.

This past week, some of the trader types I follow on Twitter have talked of little else, with speculation that perhaps the first leg of it may be nearly over, which if that was the case then there could be more attractive entry points ahead. But these are nimble trader types, not mainstream capital allocators slowly responding to investment consultant research notes. If there really is a "regime change" occurring re fiscal vs. monetary policy dominance with inflationary pressures being ushered in, then if the valuation gap is to close significantly then by definition this would prove to be early days.

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Re: Jeremy Grantham says US market is now in bubble phase

#374930

Postby hiriskpaul » January 8th, 2021, 7:03 pm

Interesting links thanks. I can definitely see evidence of a rotation to small caps. Depending on the index, they surged around 25-28% over Q4, compared to 12% for the S&P 500. Performance across the whole year was about the same, 18-19%. The small caps are still trading on lower valuations than large caps though, eg p/b 2.4 vs 3.8. That is still high compared to non-US, eg FTSE All-World non-US 1.7, Non-US Small 1.4.

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Re: Jeremy Grantham says US market is now in bubble phase

#374944

Postby Adamski » January 8th, 2021, 7:32 pm

I got a feeling a correction is coming, but a correction is always coming, and none of us know when. Just part and parcel of investing. And know from past not to trust my feelings but to try to hold a balanced long term portfolio and not tinker too much (fail in the last bit!).

I know it's just one week, but this week seen significant rotation from US to Emerging markets and UK outperformed. My US heavy holdings underperformed and China outperformed. And of course UK which I don't hold did very well. So what may have is a further rotation next few weeks.

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Re: Jeremy Grantham says US market is now in bubble phase

#375042

Postby dealtn » January 9th, 2021, 9:42 am

ReallyVeryFoolish wrote:Remember Tony Dye, the notorious Dr Doom? Sacked a few days before he was right about a market crash.

https://www.independent.co.uk/news/obit ... 96811.html

RVF


Yes quite a sad story in some ways.

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Re: Jeremy Grantham says US market is now in bubble phase

#375057

Postby simoan » January 9th, 2021, 10:31 am

dealtn wrote:
ReallyVeryFoolish wrote:Remember Tony Dye, the notorious Dr Doom? Sacked a few days before he was right about a market crash.

https://www.independent.co.uk/news/obit ... 96811.html

RVF


Yes quite a sad story in some ways.

Yes, but I think it says more about the industry he chose to work in than it does about him as a person. Mind you, if he'd stayed in UK engineering he'd have made far less money over the course of his career than he did working in the City. Personally, I avoid putting my money with fund managers who have very strong opinions and take very contrarian positions. It's no good being right eventually when you've been on the wrong side of the market for so long. Any funds I hold are only with fund managers who openly admit they don't know what will happen in the future and just concentrate on picking and holding quality companies.

All the best, Si

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Re: Jeremy Grantham says US market is now in bubble phase

#375995

Postby ReallyVeryFoolish » January 11th, 2021, 6:30 pm

And on the other hand, in today's FT -

Oaktree’s Howard Marks says valuation metrics unhelpful, after GMO’s Jeremy Grantham warns investors off tech stock


Evens chance one of them is right, but which one? No idea.

RVF

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Re: Jeremy Grantham says US market is now in bubble phase

#376001

Postby scrumpyjack » January 11th, 2021, 6:41 pm

Yes there's an old market saying

The market can stay irrational longer than you can stay solvent...

As the Tesla shorters have rediscovered!

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Re: Jeremy Grantham says US market is now in bubble phase

#376051

Postby simoan » January 11th, 2021, 9:43 pm

ReallyVeryFoolish wrote:And on the other hand, in today's FT -

Oaktree’s Howard Marks says valuation metrics unhelpful, after GMO’s Jeremy Grantham warns investors off tech stock


Evens chance one of them is right, but which one? No idea.

RVF

I assume the FT are referring to Howard Marks latest memo which was released today: https://www.oaktreecapital.com/docs/def ... -value.pdf

Always worth a read IMHO.

All the best, Si

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Re: Jeremy Grantham says US market is now in bubble phase

#376053

Postby ReallyVeryFoolish » January 11th, 2021, 9:45 pm

simoan wrote:
ReallyVeryFoolish wrote:And on the other hand, in today's FT -

Oaktree’s Howard Marks says valuation metrics unhelpful, after GMO’s Jeremy Grantham warns investors off tech stock


Evens chance one of them is right, but which one? No idea.

RVF

I assume the FT are referring to Howard Marks latest memo which was released today: https://www.oaktreecapital.com/docs/def ... -value.pdf

Always worth a read IMHO.

All the best, Si

Indeed, I didn't post a link to FT due to paywall. Anyone interested can Google for the FT article, usually anyway. I think.

RVF

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Re: Jeremy Grantham says US market is now in bubble phase

#376067

Postby simoan » January 11th, 2021, 10:39 pm

ReallyVeryFoolish wrote:
simoan wrote:
ReallyVeryFoolish wrote:And on the other hand, in today's FT -



Evens chance one of them is right, but which one? No idea.

RVF

I assume the FT are referring to Howard Marks latest memo which was released today: https://www.oaktreecapital.com/docs/def ... -value.pdf

Always worth a read IMHO.
sed
All the best, Si

Indeed, I didn't post a link to FT due to paywall. Anyone interested can Google for the FT article, usually anyway. I think.

RVF

I think you'll find that from the snippet you posted, the FT have maybe misrepresented what Howard Marks writes in the memo. He did not say that valuation metrics are unhelpful but he points out that for very high growth businesses (in particular technology businesses with intangible asset based capital light business models) that compound profits at high rates, standard valuation measures like the PER are not helpful. This is, after all, why Jim Slater started using PEG to value growing companies i.e. a company on a PER of 30 growing earnings at 30% pa. is still cheap. So nothing new. It's not his best memo ever tbh but interesting nonetheless.

All the best, Si

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Re: Jeremy Grantham says US market is now in bubble phase

#376117

Postby dealtn » January 12th, 2021, 8:38 am

ReallyVeryFoolish wrote:
simoan wrote:
ReallyVeryFoolish wrote:And on the other hand, in today's FT -



Evens chance one of them is right, but which one? No idea.

RVF

I assume the FT are referring to Howard Marks latest memo which was released today: https://www.oaktreecapital.com/docs/def ... -value.pdf

Always worth a read IMHO.

All the best, Si

Indeed, I didn't post a link to FT due to paywall. Anyone interested can Google for the FT article, usually anyway. I think.

RVF


Possibly (it never seems to work for me) but why go to a report of what is being said when you can go directly to the source? It will be rare when a reporters view on what an author is saying is better value than what the author is saying himself I would think.


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