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- Jeremy Grantham expects stocks to tank, a recession to bite, and more financial disasters to occur.
- The S&P 500 will plunge by at least 27%, and could plummet by more than 50%, the GMO cofounder says.
- Grantham predicts stress on the financial system will lead to further disasters like SVB’s collapse.
Prepare for US stocks to plunge, the economy to slump, and more financial fiascos to emerge, Jeremy Grantham has warned.
The S&P 500 will dive at least 27% to around 3,000 points, and might only bottom out next year, the market historian and GMO cofounder said in a recent CNN interview.
The benchmark stock index could plummet by more than 50% to around 2,000 points in a worst-case scenario, he added.
The veteran investor told CNN that every “great bubble” in history has ended with an economic downturn. He described the prospect of bubbles bursting in both the stock market and real estate sector as “fairly ominous.”
“The recessions are mild if everybody does everything right and there are no complications,” he said. “They are terrible if people get everything wrong.”
Grantham cautioned the sudden collapse of Silicon Valley Bank in March might be just one of several debacles this year. The disaster has sparked fears of further bank runs, and stoked concerns that lenders may panic and pull back, causing a credit crunch that hits commercial real estate and other debt-reliant sectors.
“Other things will break, and who knows what they will be,” Grantham said. “We’re by no means finished with the stress to the financial system.”
“When the great bubbles break, they do impose a lot of stress on the system,” he continued, comparing the strain to water pressing against a dam and threatening to burst through.
The markets guru accused the Federal Reserve of perpetuating a cycle of asset-price bubbles and painful crashes. Time and again, the central bank lowers interest rates too much and pumps excessive amounts of money into the economy, he said.
Grantham called for Fed Chair Jerome Powell to act more like Paul Volcker. Powell’s predecessor was dubbed the “inflation dragon slayer” after he relentlessly hiked rates to rein in runaway price increases in the 1980s.
Grantham also flagged several longer-term, global headwinds. He warned that climate change, resource shortages, and ageing populations threaten to weigh on economic growth and fuel inflation for years to come.