Juggling Dynamite

For those able to hear truth and facts…

Today on the podcast, we’re delighted to welcome back Jeremy Grantham. Jeremy is the long-term investment strategist at his namesake firm, Grantham, Mayo, Van Otterloo & Co., or GMO, which he cofounded in 1977.  Here is a direct audio link.

“Bubbles and enthusiasm, ecstasy, they’re all kind of closely related. And I like to say it’s not an accident that the most euphoric periods in the market’s history, all four of them really—1929, 1972, tech bubble of 2000, the great financial crash, 2008, and you could add, 2011, December. Those are the five euphoric points, and the first four, it’s not an accident, they’re all followed, not by the best economic times and the best market returns. They are followed by the four worst economic setbacks and the four worst periods of stock market return. What a strange coincidence.

We all learned at business school that high P/Es are meant to be reflecting the best possible future. And what we find is the highest four P/Es, highest amount of euphoria are precisely followed by the four worst economic outcomes: the Great Depression, the Great Recession of ’73-’74, the worst since the Depression, the crash and the recession after the tech bubble burst, and the real moment of truth when the great financial crash occurred, when the whole financial system of the developed world teetered on the edge of total meltdown. So, what a strange paradox that the market’s predictive power is precisely, perfectly the opposite of what we were taught.”

Danielle was a guest with Jim Goddard on Talk Digital Network, discussing recent world economy and market developments. You can listen to an audio clip of the segment here.

The unemployment rate has climbed a median of 200 basis points through past recessions while central banks were aggressively cutting policy interest rate targets. The consensus is predicting that this time will be different.

US Auto loans that were more than 90 days delinquent in the second quarter were the highest since the second quarter of 2010 (blue line below since 2004, via Arbor Research and The Kobeissi Letter). Auto loan debt held by Americans rose to a record $1.63 trillion (red line), 92% above 2008 levels, while auto insurance costs jumped by 15% in the first half of 2024. The masses are financially strained. The percentage of US consumers expecting to fall behind on their debt has been rising, now the highest since early 2020 at the outset of the pandemic (below courtesy of The Daily Shot).US bankruptcy filings are already the highest in over a decade and more than in 2020 (via Bloomberg).At the same time, the S&P 500 is trading at 3x sales (second only to the 2021 peak) and well above the 2.4x sales paid at the 2000 cycle peak (shown below since 1990, via Bloomberg).The S&P 500’s price-to-earnings ratio has risen with bullish sentiment and equity volatility (euphoria meter in red below since 1992, courtesy of ISABELNET.com) to the highest level in at least 32 years (with S&P 500 price on top in black).