Jeremy Grantham Believes Biden's Stimulus Package Would Make Market Bubble Worse
President Joe Biden recently proposed a $1.9 trillion package to help the economy recover from the effects of COVID-19. The aid package includes $1,400 direct payments, funding for state and local governments, and funds for vaccine distribution. His concern is that a lot of that money will end up in the market and cited the CARES Act package that failed to increase capital spending or real production but pushed the market to all-time highs.
"If it's as big as they talk about, this would be a very good making of a top for the market, just of the kind that the history books would enjoy," Grantham said. "We will have a few weeks of extra money and a few weeks of putting your last, desperate chips into the game, and then an even more spectacular bust," he added.
Grantham is very bearish on the current market valuation. In his investor outlook letter released at the beginning of January, he cited overvaluation, massive price surges, and "hysterically speculative investor behavior" that would lead to the US stock market bubble popping. He even claimed that not even the Federal Reserve could prevent this event from occurring.
"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," Grantham said.
Grantham also cited his inflation concerns. "If you think you live in a world where output doesn't matter and you can just create paper, sooner or later you're going to do the impossible, and that is bring back inflation," Grantham said. "Interest rates are paper. Credit is paper. Real life is factories and workers and output, and we are not looking at increased output."
Grantham recommends looking at equities outside of the US that he believes are "handsomely priced."
"You will not make a handsome 10- or 20-year return from US growth stocks," Grantham said. "If you could do emerging, low-growth and green, you might get the jackpot."