Jeremy Grantham: The Last Bear Standing?
2025.01.06 06:49
While it seems every other bear has now thrown in the towel, Jeremy Grantham remains undaunted, telling The New Yorker, “technology-based financial optimism prevalent on Wall Street has been characteristic of many speculative episodes, including the development of canals in England and railroads in the United States.”
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From a valuation standpoint, it’s difficult to argue with his labeling stocks a “bubble.” As Mike Green points out, “The earnings yield is often compared to nominal bond yields. This is not correct. Earnings yield is a ‘real’ number (Nominal Earnings/Nominal Price) and should be compared to real bond yields (TIPS). The spread to the 30-year inflation-protected bond has now hit the lowest on record.”
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As Grantham points out, much of this unprecedented valuation extreme can be explained by “technology-based financial optimism.” To wit, “Consensus estimates among Wall Street analysts for long-term earnings growth are at one of the highest readings as AI hype sweeps across a bullish crowd,” notes Callum Thomas
STAT
That optimism can also be seen in the extreme positioning of speculative traders. As Jason Goepfert writes, “Sentiment and positioning aren’t the main drivers of asset prices, but they are *a* driver. And hoo boy, there are signs that folks are way offside. Like 100x more assets in leveraged bullish funds than bearish ones, the first time ever.”
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Meanwhile, stock market breadth has deteriorated in way rarely seen before as money flows mainly into a handful of the most popular Big Tech stocks.
According to Bank of America (via The Daily Shot), monthly market breadth hit an all-time low in December which clearly suggests the extreme optimism on the part of investors could be misplaced.
