Legendary Investor: Market Crashes in Months

Months, he claims. Not years…

As we noted recently, Citi’s “Panic/Euphoria” index has attained record heights.

That is, market euphoria has attained record heights. Present euphoria far exceeds the technology delirium of 2000… by Citi’s reckoning.

It is a thing for the ages, argues legendary money man Jeremy Grantham.

Today’s bubble will go alongside the South Sea Bubble… 1929… and 2000:

The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble. Featuring extreme overvaluation, explosive price increases… and hysterically speculative investor behavior, I believe this event will be recorded as one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000.

And so?

Whenever market sentiment streaks to such ecstatic heights as today’s — warns this Cassandra — collapse is months off.

No exceptions exist:

When you have reached this level of obvious super-enthusiasm, the bubble has always, without exception, broken in the next few months, not a few years.

“A few” is defined as greater than two — but less than many.

Thus the evil day may break in April… or “not many” months after.

But when?

We offer no specific answer. “You know neither the day nor the hour,” as Matthew instructs us.

We merely post a crash watch, as the weatherman might post a storm watch.

The equipment detects a disturbance in the distant tropics, for example. The ocean temperature is unusually high. The winds are converging in ominous conspiracy. The barometer is plunging.

All conditions indicate the formation of an abominable hurricane.

But it is early… and the variables are many.

How severe will it be? Will it strike land eventually? Where? Or will it veer harmlessly off into the ocean wastes?

It is not yet possible to determine the answer. But the indications are worrisome.

Now consider today’s stock market…

Stock valuations run to record highs, investors have never been as euphoric, most experts forecast clear skies for the duration.

That is, a storm is likely abrew. The conditions favor it. Yet we cannot set it down as an immediate menace.

And so we post our storm watch. Not an advisory. Not a warning — a watch.

We wish merely to alert you to developments.

But a forecast of  “a few months” is no forecast at all, you say.

Who would run for shelter at the weatherman’s warning of a storm… sometime within the next few months?

Here is our counter: Is it not better to prepare in advance regardless, to beat the crowd?

Do you have your batteries on hand? Your water? Your canned goods?

Why wait until the fatal hour… when the shelves are bare of goods… and the pumps at the filling station are dry?

Yet you remain dissatisfied with the ambiguity — and with Matthew. You demand to know the precise day, the precise hour.

Thus we have been searching for signs in the heavens… poring over the entrails of birds… consulting our oracle… and gazing into our crystal ball.

Alas, our findings to date are ambiguous. The crystal ball and the bird entrails, in particular, are four months apart.

Should these esoteric sciences fail to divine a precise date, we will be forced to consult less reliable forecasters — CNBC, for example. Perhaps Business Week.

And if these resources fail to yield our exact date? There is always Paul Krugman.

Should he disappoint… we will simply have to guess.

But this we can report with soaring confidence: The market will collapse within months…

If not three months, then six months. If not six months, then 12 months. If not 12 months, then 24 months. And if not 24 months…

Certainly within the next 108…


Brian Maher

Brian Maher
Managing Editor, The Daily Reckoning

The Daily Reckoning