Legendary investor Jeremy Grantham claims there is a 70% chance of a stock market crash

The legendary investor, whose background is in big stock crashes, says the market is heading for a bubble burst like the 1929 and 2000 crises.

British billionaire Jeremy Grantham is the co-founder of investment management company GMO, which reportedly manages around $65 billion in assets.

Grantham, who is worth an estimated $1 billion, previously put the probability of a stock market crash at 85%, but has since downgraded it to 70%.

Despite falling numbers, Grantham is convinced the market has set the perfect conditions for bubbles like asset prices to burst, but said the advent of artificial intelligence has delayed the explosion.

Speaking to WealthTrack in an interview published over the weekend, Grantham, who specializes in long-term investment strategy, said the stock has benefited from a "near-perfect" environment for nearly a decade.

“I'm only interested in really big bubbles like 1929, 2000 and 2021, [which] are the three biggest bubbles in the US stock market. We checked all the points pretty well,” he said.

Grantham, who now runs a green investment family fund in his own name, said the "boxes" are periods of extended economic growth, strong bull markets and high returns.

In each of these scenarios, Grantham points out that the markets then followed a "sharp decline."

In 1929, there was Black Thursday, when $14 billion was wiped from the market in one day; in 2000 the Nasdaq lost 76.81% of its value in less than two years; and it also fell by 10% in 2021.

Grantham said the rally before his predicted crash was "completely real and correct," noting that the S&P 500 was up 20% in June from its October low.

 Grantham's gloomy predictions have always proved correct.

Grantham similarly told WealthTrack two years ago that he expected to see a bubble of "epic" size because a number of different markets were trading at extreme lows: the housing market, the stock market, and the bond market operating at extreme lows in various ways.

A year later, many of those assets were heavily corrected, and meme-driven stocks, such as movie theater company AMC, plummeted by the summer.

Given that the effects of such an explosion could range from the devastation of the 1929 crash to a "respectable" recession in 2000, Grantham wonders: how fast and for how long will the economy collapse? How low will profit margins fall?

“They have already fallen decently, but they could have done a lot worse. And how bad other economic variables will be - problems in world trade, problems with China, problems with the war. And how will it play? It's very hard to say."

"Mini Bubble" AI

Grantham said he was "worried" about the emergence of a so-called "mini-bubble" that has been inflated by innovators in the technology industry.

 Companies such as Microsoft, which mentioned the phrase "artificial intelligence" 50 times during an earnings call in April, saw significant gains in their stock prices.

The meta is making similar gains: CEO Mark Zuckerberg's net worth has increased by about $40 billion - thanks to the shares he owns in the platform - since he announced a pivot away from the metaverse to focus on AI products and services.

Grantham said he is currently unsure if AI will be "fast and strong enough" to keep the market bubble from exploding.

The investment expert said the advent of technologies such as ChatGPT was the reason he cut his forecast of a "ridiculously high" 85 percent chance of the market crashing to 70 percent.

 However, he countered that the AI ​​rally was a niche market, explaining, “God knows it was hard before AI reared its ugly head. We've had inflation, the Fed, how quickly rates will rise, how far they'll rise, how the war will play out - it goes on and on.

“Now we have, since ChatGPT and October and November of last year, we have a new little surge of interest that is very concentrated.”

How far technology will go to change the course of the market depends on who you ask, Grantham noted, saying there is a "struggle" of opinions about how the technology will affect society.

“Some of the smartest people on the planet say it's all nonsense, it's just a parrot learning by trial and error. Other people say it will change everything, double productivity and everything in between,” Grantham noted.

Grantham's suggestion is that AI does not operate on the same timeline as the bubble in the near future, which he predicts: "We have a year or two to have a fairly traditional bubble, losing air, traditional recession in the economy, profits and problems in the stock markets. We could have a crisis before the real AI effect kicks in.”