Let's discuss value investor Jeremy Grantham's thesis on "super bubbles" and his target for the S&P 500.

(Click on image to enlarge)

S&P 500 chart courtesy of StockCharts.Com, annotations by Mish with thanks to Jeremy Grantham.

Fourth Super Bubble    

For almost a half-century, value-investing icon Jeremy Grantham has been calling market bubbles. Now, he says U.S. stocks are in a “super bubble,” only the fourth in history, and poised to collapse.

Please do yourself a big favor and play the above interview in entirety.

It's not a fluff interview. Bloomberg's Erik Schatzker grills Jeremy Grantham right from the get go about Grantham's view a year ago. 

Q&A Snips

Schatzker: At the risk of putting words in your mouth, you are as certain [now] as you were then, if not more?

Grantham: I would say clearly more. I did freely admit, not in our conversation, but elsewhere, that I wasn't quite as certain about this bubble a year ago as I had  been about the tech bubble of 2000 or as I had been in Japan or as I had been in the housing bubble of 2007. I used to think in terms of near certainties. This time I felt highly likely bit perhaps not nearly certain. Today I feel it is just about nearly certain.

Grantham discusses "crazy behavior" , noting that even in 1929 you had some magnificent rallies.

Schatzker: If you are right and stocks are in a multi-sigma deviation from the statistical trend, tell me what happens. The S&P 500 peaked at almost 4800 points. What is the bottom?

Grantham: The trend line, being slightly generous, is 2500. And most of the great bubbles, the super bubbles go below trend and stay there for quite a while. In 2000, the Nasdaq came down 82 percent but the Federal Reserve raced to the rescue so loudly and strongly they stopped the decline in the S&P at the trend line, It only declined 50 percent. This time trend is at most 2500. And I would expect, even if the Federal Reserve tries to do the same it will be hard to prevent the market from declining to that level.

Mish: There's much more in the interview. The above only covers 9 of 37 minutes.

Watch the video in entirety.

Epic Crash Coming   

The third favor you can do for yourself is start paying attention to John Hussman.

Yes, I know, many consider him to be a washed up permabear. Well, evaluations matter eventually. That time is now. 

Top Dollar for Top Dollar

(Click on image to enlarge)

Chart by John Hussman, blue annotations by Mish

MAPE stands for "Margin-Adjusted P/E" 

Unlike Grantham, Hussman's view is not locked.

Trap Door

Please consider Top Dollar for Top Dollar by John Hussman.

Why is it so hard to accept that speculative bubbles can burst? Interest rates were driven to zero for a decade. Yield-starved investors chased stocks to valuations beyond the 1929 and 2000 extremes. That speculation front-loaded more than a decade of future market gains into the present. Those gains are now behind us, embedded in breathtaking multiples. If history is any guide, a collapse in valuations is likely to return those gains to the future.

For now, the market continues to be in a “trap door” situation. Our gauges of market internals remain unfavorable, and valuations remain obscene. The market capitalization of non-financial and financial corporate equities hit $67 trillion at the recent peak. That’s a lot of stock market capitalization. The ratio of U.S. market cap/GDP began 2022 at a record extreme of 2.82, compared with a multiple of 1.88 at the 2000 bubble peak, and a historical norm of just 0.78. When you look at market capitalization, recognize that as much as 72% of it may be air. That is the hazard.

Hussman provides over 20 charts. It's not important to understand them all. The key chart is "You are Here".

Hussman also goes into a discussion of the "Fed Put" that is the Fed will cushion the decline. 

OK, at what level? 50% at best as Grantham believes or something lower?

Higher? Why? 

"As much as 72% of market capitalization may be air."

I have morphed into Grantham, but perhaps not quite Hussman. But like Hussman, I expect to be mocked for this post.