From a 13 page client note from Jeremy Grantham, co-founder and chief investment strategist of Boston-based asset manager GMO
- "I recognize on one hand that this is one of the highest-priced markets in U.S. history. On the other hand, as a historian of the great equity bubbles, I also recognize that we are currently showing signs of entering the blow-off or melt-up phase of this very long bull market"
Grantham puts some probabilities out there:
- A melt-up or end-phase of a bubble within the next six months to two years is likely, i.e., over 50%
- If there is a melt-up, then the odds of a subsequent bubble break or meltdown are very, very high, i.e., over 90%
- If there is a market decline following a melt-up, it is quite likely to be a decline of some 50%
This is particularly interesting, Grantham looking at the rate or price rise (bolding mine, but underlining is his):
- The classic examples are not just characterized by higher-than-average prices.
- Price alone seems to me now to be by no means a sufficient sign of an impending bubble break. Among other factors, indicators of extremes of euphoria seem much more important than price
- ... the importance of a true psychological event of momentum increasing to a frenzy. That is to say, acceleration of price.
The full note is here if you'd like to read it all:
