Billionaire investor Jeremy Grantham, co-founder of the investment firm GMO, warns that markets are facing one of the largest financial "bubbles" in US history, centered on artificial intelligence and new technology stocks.
In an extensive interview on The Diary of a CEO, Grantham clarified that the views he expresses are personal and do not constitute an official position of GMO, which manages funds amounting to approximately 85 billion dollars.
The AI creates the largest stock market bubble
Grantham considers that artificial intelligence constitutes a real technological revolution, comparable to the major infrastructures that changed the economy over the last two centuries.
However, he estimates that every major technological innovation is initially accompanied by excessive enthusiasm, overinvestment and ultimately by significant destruction of value.
To support his view, he invokes characteristic examples from market history.
The example of Amazon and the comparison with the South Sea Bubble
The investor recalls that during the internet bubble in 1999, the stock of Amazon had multiplied six to seven times before collapsing by approximately 92% after the bursting of the bubble.
Concurrently, he points out that US equities are currently trading at valuations of 35 to 40 times their earnings, levels significantly higher than historical averages.
As yet another example of exaggeration, he mentions the informational material of SpaceX, which speaks of a potential market corresponding to one-fourth of global GDP, and even of mining asteroids.
Grantham compares the situation to the well-known financial South Sea Bubble, estimating that in the future investors will view the current period in the same way they study that major stock market collapse today.
Warning of a drop of up to 70%
According to Grantham, the mass participation of retail investors in US markets has significantly increased the risk of a major correction.
He estimates that several stocks related to artificial intelligence could decline by even 70%, characterizing the current situation as "the largest financial bubble in the history of the United States".
Harsh attack on Bitcoin
Grantham appears even more critical toward cryptocurrencies and specifically toward Bitcoin.
As he states, he has never bought Bitcoin and does not intend to invest in it in the future, considering that it lacks real economic fundamentals and practical utility.
In his view, Bitcoin cannot function either as a stable store of value or as an effective medium of exchange, due to its intense volatility.
He also argues that its primary use remains speculation, while he estimates that in a very long-term horizon its value may drop to zero.
He recommends exiting US equities
In view of a potential major correction, Grantham suggests to investors to drastically reduce their exposure to US equities.
He proposes that 60% of the portfolio be placed in international markets outside the US, such as Europe, Japan, Canada, Australia and emerging economies.
The remaining part of the portfolio, according to him, should be directed to short-term government bonds, real estate and precious metals, such as gold and silver.
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