Jeremy Grantham, cofounder of GMO and a long-term investment strategist, issued a stark warning to wealth advisors and registered investment advisors (RIAs) about the precarious state of the markets and broader financial landscape.
Speaking on the Insightful Investor podcast, Grantham highlighted several key concerns, emphasizing the risks to portfolios and advising caution.
Stock Market Bubble Risks
Grantham described the current stock market as “just as crazy” as at any other time in history, pointing to a dangerous bubble that’s likely to burst. The S&P 500 has risen an impressive 31% over the past year, but the index now trades in the top 1% of the Shiller price-to-earnings (P/E) ratio’s historical range, he noted.
“When you start from this level, you have a very hard time going up materially,” Grantham warned, underscoring the challenges of generating further gains in an already overheated market.
He reminded advisors that prolonged bull markets usually take root when economic conditions are weak—unemployment is high, corporate profit margins are under pressure, and valuations are deeply discounted. The current environment, marked by high valuations and strong profit margins, represents the opposite scenario, placing stocks in what Grantham called “double jeopardy.” Both profits and valuations could see sharp declines, presenting a serious challenge for equity-focused portfolios.
Grantham drew parallels to past bubbles, including those of 1929 and 1999, which ended disastrously. He cautioned that the ongoing market surge could be following a similarly unsustainable trajectory.
AI Stocks and the ‘Snake in the Garden Party’
The recent rally in artificial intelligence (AI)-driven stocks has further fueled the bubble, Grantham observed. He referenced the so-called “Magnificent Seven” tech giants that have led the market higher, suggesting they could suffer the same fate as the Nifty Fifty—dominant stocks of the 1970s that eventually crashed, leaving many companies like Kodak and Polaroid permanently damaged.
Grantham also touched on the 2021 “superbubble” he identified, warning that it signaled potential “death and destruction.” However, the launch of OpenAI’s ChatGPT in late 2023 disrupted his prediction. The AI tool sparked a fresh wave of investor enthusiasm for AI stocks, which he described as “a snake in the garden party.” This mania around AI has injected new risks into the market, he said, advising advisors to approach such investments with extreme caution.
Dollar Dominance Remains Secure
Turning to the issue of de-dollarization, Grantham dismissed concerns that the US dollar’s position as the world’s reserve currency is under imminent threat. While there has been speculation about a shift away from the greenback, he noted that such transitions take decades, pointing to the gradual decline of the British pound as a precedent.
“My guess is it’s not going to be easy to kill off the dollar as the central currency for the world,” Grantham said, reassuring advisors that the dollar remains a cornerstone of global trade and finance.
Skepticism on Bitcoin
Grantham was unequivocal in his criticism of bitcoin, calling it “perplexing.” The cryptocurrency recently reached a record high of over $72,000, but Grantham dismissed it as lacking intrinsic value.
“It doesn’t pay you a dividend, and it doesn’t create any value unless you’re a drug dealer—or other bad guys who want to stay off the radar,” he said, questioning why governments haven’t moved to ban it outright. He argued that bitcoin facilitates illegal activities, making it a dubious asset class for serious investors.
In contrast, Grantham acknowledged that while gold also lacks intrinsic value in the sense of generating income, it has thousands of years of history and industrial applications to support its status as a store of value. Bitcoin, he suggested, has no such redeeming features.
“Still, I’m suspicious of gold,” Grantham admitted, “but I’m just a hell of a lot more suspicious of bitcoin.”
A Call for Vigilance
Grantham’s remarks come as a reminder to wealth advisors and RIAs to remain vigilant in the face of frothy markets and speculative trends. While his predictions have not always played out as expected, his warnings provide a sobering perspective for those managing client portfolios in uncertain times.
Advisors should consider these risks carefully, stress-testing portfolios against potential market downturns, and ensuring clients are prepared for volatility. Grantham’s analysis highlights the importance of balancing growth opportunities with defensive strategies, particularly in a market environment that appears increasingly disconnected from economic fundamentals.
