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Bracing Yourself for a Possible Near-Term Melt-Up

By Jeremy Grantham

Viewpoints

03 January 2018

Executive Summary

We can be as certain as we ever get in stock market analysis that the current price of the market is exceptionally high. However, classic examples of the great bubbles of the past 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. Interestingly, we are currently showing signs of entering the blow-off or melt-up phase of this very long bull market. My judgment on the melt-up is based on a mish-mash of statistical and psychological factors based on previous eras, each one very different, so that much of the information available is not easily comparable. Yet, strangely, I find the less statistical data more compelling in this bubble context than the simple fact of overpricing. Whether you will also, dear reader, remains to be seen. In any case, my task in this note is to present the evidence, both statistical and touchy-feely, as clearly as I can.

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Disclaimer: The views expressed are the views of Jeremy Grantham through the period ending January 2018, and are subject to change at any time based on market and other conditions. This is not an offer or solicitation for the purchase or sale of any security and should not be construed as such. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities.
Copyright © 2018 by GMO LLC. All rights reserved.
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