Finally, on a cheery note for a Monday, is the possibility that all of this is just one huge honkin’ bubble that could get even bubblier before bursting.
“From Indian antiquities to modern Chinese art,” wrote legendary value investor Jeremy Grantham in a letter to his clients earlier this week, “from land in Panama to Mayfair; from forestry, infrastructure and the junkiest bonds to mundane blue chips; it’s bubble time!”
“Everyone, everywhere is reinforcing one another. Wherever you travel you will hear it confirmed that ‘they don’t make any more land,’ and that ‘with these growth rates and low interest rates, equity markets must keep rising,’ and ‘private equity will continue to drive the markets.'”
“The mechanism is surprisingly simple…Perfect conditions create very strong ‘animal spirits,’ reflected statistically in a low risk premium. Widely available cheap credit offers investors the opportunity to act on their optimism.” And here comes the scary part.
“The bursting of [this] bubble will be across all countries and all assets, with the probable exception of high-grade bonds…Since no similar global event has occurred before, the stresses to the system are likely to be unexpected. All of this is likely to depress confidence and lower economic activity.”
We’re nearly to May. Record highs on stocks are falling faster than leaves on the plane trees along St. Kilda Road. And as Grantham points out, the synchronization of asset bubbles also means the synchronization of asset busts. More tomorrow on surviving the bust with tangible assets.
Markets and Money
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