In the waning days of Donald Trump's presidency, Jeremy Grantham warned that U.S. stocks were in an epic bubble. He now predicts Joe Biden's economic recovery plan will propel them to perilous new heights, followed by an inevitable crash.
"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," Mr. Grantham, the value-investing legend and co-founder of Boston-based GMO, said in an interview. "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."
Data show risk-taking exploded following the last round of pandemic-relief checks. Mr. Grantham has "no doubt" at least some of the $1.9 trillion in federal aid Mr. Biden is seeking from Congress will end up being spent on stocks instead of food or shelter.
He envisions a collapse rivaling the 1929 crash or the dot-com bust of 2000, when the Nasdaq Composite index plunged almost 80% in 31 months.
Many investors argue today's valuations are justified by the growth potential of transformative technologies and new business models. Mr. Grantham, 82, dismisses that argument as fanciful, and he rejects the popular theory that the Federal Reserve can cushion or even reverse the next slide with bond buying that pumps more liquidity into financial markets.
"At the lowest rates in history, you don't have a lot in the bank to throw on the table, do you?" he said.