Stay up to date with the CriptoTendencia WhatsApp channel: Instant news about Bitcoin, Altcoins, DeFi, NFT, Blockchain and Metaverse. Subscribe!
The Federal Reserve’s (Fed) fight against inflation is shaping up to be one of the most notable victories in US history. The soft landing looks set to take hold in 2025 and the economy will continue its upward march after defeating inflation without the need for a recession. However, the legendary Jeremy Grantham warns of a great danger for the markets.
It is worth mentioning that this is not a simple opinion, but one of the most respected in the financial world. This expert predicted financial crashes such as the technology bubble of 2000, the financial crisis of 2008, the Japan bubble of 1989 and the Covid-19 bubble of 2021-2022. As you can see, this is someone who should be listened to seriously when he speaks.
For some years now, the expert has been warning about a serious situation in the financial markets. Basically, it ensures that a huge bubble is brewing that threatens a devastating recession. In his opinion, part of the responsibility for this hypothetical event falls on the US governments. In simple words, the soft hand against technological monopolies will end up causing a big problem.
More Read
The theory with which Jeremy Grantham warns about big bubbles was successfully applied in cases such as Amazon shares. The same is that the bigger the new idea, the more the market overvalues it and the more euphoria it attracts. This leads to a crash, as in the case of the 2000 bubble.
Grantham warns of impending recession
According to Grantham’s view, the market is preparing for a new bubble burst situation. The new cause would be the euphoria related to artificial intelligence and the fact that this technology is controlled by well-known monopolies or oligopolies.
In any case, the expert affirms that the main indicators do indeed point towards a financial collapse. These include the interest rate differential between 6 months and 10 years. Added to this is the constant increase in unemployment and the gigantic debt of the United States.
In his opinion, the current high valuations are due to the aforementioned lack of control over monopolies. The latter leads to extraordinary profits for firms such as Alphabet, Microsoft, Apple, Amazon, Nvidia and Meta. On the other hand, it points out striking anomalies in the valuation model.
By that he means the correlation between high profit margins, inflation and P/E ratios. He points out that there is currently an anomaly similar to that of the bubbles of 2000 and 1925. Under normal conditions, the P/E should be at 23x, but now it reads 38x, or a spread of 49%.
At the same time, the analyst remembers that only 20% of the stocks that soared in the Internet bubble of 2000 managed to survive the burst. In a recent interview in August, he stated that in 2024 “we are facing the weakest market ever seen.”
In simple words, the phenomenon that Jeremy Grantham warns about is summarized as: the higher the valuation, the greater the chances of a bubble bursting. The expert recommends that the risk can be minimized by investing in emerging markets such as India, Brazil or Mexico.
Related
Crypto Keynote USA
For the Latest Crypto News, Follow ©KeynoteUSA on Twitter Or Google News.
