Jeremy Grantham says a super bubble crash may be underway. Here’s where he’s stashing his cash

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One of the world’s most famous fund managers is warning that a “super bubble” that’s been building for more than a decade may be in the process of bursting.

Jeremy Grantham is the co-founder of GMO, which claims to have predicted the Japanese crash of 1989, the dotcom bust of 2000 and the global financial crisis of 2008.

Jeremy Grantham in suit and tie looking directly at the camera.
Jeremy Grantham, co-founder of international fund manager GMO, is warning the US is in a “super bubble”.(Supplied: GMO)

He is now warning of another similar crash in asset prices, with speculative tech stocks first in the firing line.

And he warns the downturn is “likely” already happening, with Wall Street’s tech-heavy Nasdaq down 12 per cent from its peak in November and the broader S&P 500 index down almost 7 per cent from its record closing high in early January.

“I would say that is the beginning of the burst, when the specs that typically go up quite a lot more than the market goes down as the market goes up,” he tells The Business.

“So the S&P [500 index] went up 25 per cent last year, and a lot of the most speculative stocks of 2020 were already going down.

Mr Grantham says that process of a super bubble bursting appears to be well underway, with many of the most speculative stocks already losing at least half their value from the peak.

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Jeremy Grantham warns a share market crash is likely underway.(Kathryn Robinson)

“At the end, the speculative stocks start to peel off and, even on the upside for the broader market, they start to go down,” he observes.

“That started early last year — the super-duper specs, the worst of them all, started to decline.

Mr Grantham says the current US market is looking “eerily similar” to the dotcom boom and bust but, as in 2000, he warns it is not only the speculative stocks that are heavily overvalued and will fall.

“I think it would be unlikely that the market would not come down by 50 per cent from its peak — the broad market, the S&P — and it would be unusual if the specs did not do worse than that.”

ASX ‘doesn’t look horrific’

The hand of a man in a suit checking the ASX website on his phone at the ASX.
Jeremy Grantham says the Australian share market doesn’t look anywhere near as overvalued as the US.(ABC News: John Gunn)

The good news for Australian investors is that, even though Mr Grantham thinks real estate and bonds are overvalued across most of the developed world, he believes the local stock market is nowhere near as overpriced as Wall Street.

“I am not an expert on Australian equities. It doesn’t look cheap, but it doesn’t look horrific,” he says.

“When it comes to the stock market, rather like 2000 and the tech bubble, this is more an American affair than anything else.

“In the US, however, we have an extreme overpricing, extreme crazy behavior, and I think we’re in a rather dangerous equity bubble.

“So there’s a decent chance that Australia, the UK, Japan, there’s some fairly reasonably priced countries, if they come down in sympathy, they’ll come down a lot less and probably rally earlier.”

Where to stash cash?

His preference is to look for beaten-down stock values ​​in some of the developing markets.

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