Legendary investor Jeremy Grantham says Biden's $1.9 trillion stimulus plan would make the stock market bubble even worse

Matthew Lloyd/Getty Images for ReSource 2012 Matthew Lloyd/Getty Images for ReSource 2012

 

The GMO cofounder told Erik Schatzker that he had «no doubt» some of the federal money would end up in the market. Grantham said that if a $1.9 trillion package were passed, it could lead to the dangerous end of the bubble. «If it’s as big as they talk about, this would be a very good making of a top for the market, just of the kind that the history books would enjoy,» Grantham said. Grantham has long warned of what he sees as a ballooning bubble in the US stock market.

In his investor outlook letter in the beginning of January, he detailed how extreme overvaluations, explosive price increases, frenzied issuance, and what he called «hysterically speculative investor behavior» all demonstrated that the stock market was in a bubble that not even the Federal Reserve could stop from bursting. «When you have reached this level of obvious super-enthusiasm, the bubble has always, without exception, broken in the next few months, not a few years,» Grantham told Bloomberg. Grantham also said the combination of fiscal stimulus and emergency Fed programs that helped inflate the bubble could increase inflation. «If you think you live in a world where output doesn’t matter and you can just create paper, sooner or later you’re going to do the impossible, and that is bring back inflation,» Grantham said.

«You will not make a handsome 10- or 20-year return from US growth stocks,» Grantham said.

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Source: Emily Graffeo | Business Insider