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To be clear Jeremy Grantham, has been saying we are in a bubble for years. He now says we are approaching the end of a “superbubble” The stock market at 2x US

To be clear Jeremy Grantham, has been saying we are in a bubble for years. He now says we are approaching the end of a “superbubble” The stock market at 2x US GDP has concerned many for quite some time https://www.forbes.com/sites/nicksargen/2021/09/02/us-stock-market-capitalization-at-2x-gdp-how-ominous-is-it/ https://www.forbes.com/sites/nicksargen/2021/09/02/us-stock-... The “Buffett indicator“ https://en.m.wikipedia.org/wiki/Buffett_indicator https://en.m.wikipedia.org/wiki/Buffett_indicator

tim333 5y ago
The market cap to US GDP indicator is probably a bit dated in that the world is so globalised these days so companies like Apple are getting a cut of global GDP rather than US GDP.
xqcgrek2 5y ago
He's one if the few big managers that managed to dodge the 1989 Japan bubble, the 2000 tech bubble and the 2008 housing bubble while still making money. Mean reversion is a powerful force.
- lotsofpulp 5y ago
  He also missed out big time on tech companies’ growth after 2008, and made some bad investments in IBM and Kraft Heinz. Seems like the biggest thing propping up BRK returns is AAPL, which is currently 25% of BRK (by market cap).
  - deleted 5y ago
    [deleted]
  - adg001 5y ago
    He reaffirmed over and over again that he only invests within his sphere of competence and made clear that IT companies do not fall within the said sphere. Not investing in the said tech companies and remaining consistent to the markets he mastered best was a deliberate choice and one of the main reasons for his success.
patrickthebold 5y ago
If I have inflation fears, and I think we are in a stock bubble, where should I put my money. It seems like whatever you do there's more risk now than in the past. I'm genuinely asking. It seems like I'm being forced to make bets more so than 10 years ago.
- lotsofpulp 5y ago
  The house is invested in keeping stock prices stable and rising, and it is not a good idea to bet against the house.
  - weatherlite 5y ago
    > The house is invested in keeping stock prices stable and rising, That's not really accurate - the goal of the Fed and all central banks is to keep prices stable and employment levels optimal. If inflation is going out of control then prices won't be stable and employment won't be optimal, in such a case the stock market might have to take a hit. Also, it's pretty clear most central bankers understand the current inequality level is not good.
    - baskethead 5y ago
      The Fed wants inflation. It’s deflation they are concerned about and something that could happen when super bubbles deflate.
      - weatherlite 5y ago
        They want 2% inflation, not out of control inflation.
  - jack_pp 5y ago
    That's true until you can't withdraw your funds from the house because the house was a degenerate and fucked with it.
  - baskethead 5y ago
tcgv 5y ago
The Buffet Indicator seems to be at an all time high of 211% (ratio of Market value to GDP), 64% higher than the exponential historical trend line [1] It really looks like it's too stretched, and more volitile in recent years. [1] https://cmv.imgix.net/2022-01-13-BI-3-Mkt-to-GDP.png?w=660&dpr=2&fm=webp https://cmv.imgix.net/2022-01-13-BI-3-Mkt-to-GDP.png?w=660&d...
drclau 5y ago
> The stock market at 2x US GDP has concerned many for quite some time Genuinely curious, since the stock market is global, can’t it be twice the US GDP without it being a significant problem?
- jdavis703 5y ago
  I don't know what you mean by significant problem. But the market is a bet on future global growth. If you can buy and hold (e.g. hold for 20-30 years in a retirement account) then I personally wouldn't worry. I'm still putting as much as I can in to my retirement which is 98% stock and 2% bonds (I'm in my early 30s).
- ianai 5y ago
  Depends what stock market you're talking about. The GDP is a flow-variable measure of how much money traded hands in a year in an economy (national). It's supposed to function as a measure of yearly production. The market cap of companies within the NYSE, LSE, etc are stock variables. Literally the sums of all the current trading prices times the number of outstanding shares of each company (roughly). There's lots of noise in all those variables. i.e. You probably couldn't fully liquidate every stock of a company at the exact, same price in one transaction. Talking about GDP for a nation can be varying levels of politically manipulated or just noisy from messy data. There's further noise introduced when trying to figure out a GDP for something like the global economy. i.e. taking a ratio of stock market cap to a GDP is more like creating a metric without too much intrinsic theory for why to create the metric.
- niknoble 5y ago
  Even if it was 10x US GDP and it was only US stocks, there wouldn't be an obvious reason why that's a problem. The GDP measures yearly output. Why is it concerning for the stock market to be priced at 10 years of output?
  - Jensson 5y ago
    The stock market valuation is essentially how much money will trickle up to the owners in the future. If owners expects to extract 10 years of productivity then that is a huge red flag, basically means that working isn't valued and instead all the value goes to the asset owners instead of the workers. So you can see the valuation multiple as the tax workers pays to asset owners, high taxes are bad for the economy.
austenallred 5y ago
I have no idea whether we’re in a massive bubble (or whether everything is simply more expensive because of inflation or both), but I have learned you should never blindly trust the advice of someone who uses terms like “two sigma” and “three sigma” without showing any of the math/statistics about what the mean is and why we are multiple standard deviations from it.
- tim333 5y ago
  He's been doing this stuff for a long time and there is probably an explanation of the maths out there somewhere on the GMO site.

tim333 5y ago

The market cap to US GDP indicator is probably a bit dated in that the world is so globalised these days so companies like Apple are getting a cut of global GDP rather than US GDP.

xqcgrek2 5y ago

He's one if the few big managers that managed to dodge the 1989 Japan bubble, the 2000 tech bubble and the 2008 housing bubble while still making money. Mean reversion is a powerful force.

lotsofpulp 5y ago
He also missed out big time on tech companies’ growth after 2008, and made some bad investments in IBM and Kraft Heinz. Seems like the biggest thing propping up BRK returns is AAPL, which is currently 25% of BRK (by market cap).
- deleted 5y ago
  [deleted]
- adg001 5y ago
  He reaffirmed over and over again that he only invests within his sphere of competence and made clear that IT companies do not fall within the said sphere. Not investing in the said tech companies and remaining consistent to the markets he mastered best was a deliberate choice and one of the main reasons for his success.

patrickthebold 5y ago

If I have inflation fears, and I think we are in a stock bubble, where should I put my money. It seems like whatever you do there's more risk now than in the past. I'm genuinely asking. It seems like I'm being forced to make bets more so than 10 years ago.

lotsofpulp 5y ago
The house is invested in keeping stock prices stable and rising, and it is not a good idea to bet against the house.
- weatherlite 5y ago
  > The house is invested in keeping stock prices stable and rising, That's not really accurate - the goal of the Fed and all central banks is to keep prices stable and employment levels optimal. If inflation is going out of control then prices won't be stable and employment won't be optimal, in such a case the stock market might have to take a hit. Also, it's pretty clear most central bankers understand the current inequality level is not good.
  - baskethead 5y ago
    The Fed wants inflation. It’s deflation they are concerned about and something that could happen when super bubbles deflate.
    - weatherlite 5y ago
      They want 2% inflation, not out of control inflation.
- jack_pp 5y ago
  That's true until you can't withdraw your funds from the house because the house was a degenerate and fucked with it.
- baskethead 5y ago

tcgv 5y ago

The Buffet Indicator seems to be at an all time high of 211% (ratio of Market value to GDP), 64% higher than the exponential historical trend line [1] It really looks like it's too stretched, and more volitile in recent years. [1] https://cmv.imgix.net/2022-01-13-BI-3-Mkt-to-GDP.png?w=660&dpr=2&fm=webp https://cmv.imgix.net/2022-01-13-BI-3-Mkt-to-GDP.png?w=660&d...

drclau 5y ago

> The stock market at 2x US GDP has concerned many for quite some time Genuinely curious, since the stock market is global, can’t it be twice the US GDP without it being a significant problem?

jdavis703 5y ago
I don't know what you mean by significant problem. But the market is a bet on future global growth. If you can buy and hold (e.g. hold for 20-30 years in a retirement account) then I personally wouldn't worry. I'm still putting as much as I can in to my retirement which is 98% stock and 2% bonds (I'm in my early 30s).
ianai 5y ago
Depends what stock market you're talking about. The GDP is a flow-variable measure of how much money traded hands in a year in an economy (national). It's supposed to function as a measure of yearly production. The market cap of companies within the NYSE, LSE, etc are stock variables. Literally the sums of all the current trading prices times the number of outstanding shares of each company (roughly). There's lots of noise in all those variables. i.e. You probably couldn't fully liquidate every stock of a company at the exact, same price in one transaction. Talking about GDP for a nation can be varying levels of politically manipulated or just noisy from messy data. There's further noise introduced when trying to figure out a GDP for something like the global economy. i.e. taking a ratio of stock market cap to a GDP is more like creating a metric without too much intrinsic theory for why to create the metric.
niknoble 5y ago
Even if it was 10x US GDP and it was only US stocks, there wouldn't be an obvious reason why that's a problem. The GDP measures yearly output. Why is it concerning for the stock market to be priced at 10 years of output?
- Jensson 5y ago
  The stock market valuation is essentially how much money will trickle up to the owners in the future. If owners expects to extract 10 years of productivity then that is a huge red flag, basically means that working isn't valued and instead all the value goes to the asset owners instead of the workers. So you can see the valuation multiple as the tax workers pays to asset owners, high taxes are bad for the economy.

austenallred 5y ago

I have no idea whether we’re in a massive bubble (or whether everything is simply more expensive because of inflation or both), but I have learned you should never blindly trust the advice of someone who uses terms like “two sigma” and “three sigma” without showing any of the math/statistics about what the mean is and why we are multiple standard deviations from it.

tim333 5y ago
He's been doing this stuff for a long time and there is probably an explanation of the maths out there somewhere on the GMO site.