Legendary investor Jeremy Grantham has warned that house prices are doomed to fall amid high mortgage rates.
He also called megacap tech stocks monopolies, weighed in on Tesla’s Elon Musk and revealed what annoys him the most. Grantham did so in an interview on Friday. He joined Josh Brown and Michael Batnick of Ritholtz Wealth Management on “The Compound and Friends” podcast and also talked about everything from the current stock market environment, to asset bubbles, and what excites him most.
These are the top 9 quotes from Grantham’s new interview.
1. Expect lower housing prices
“Forty years of lower and lower interest rates pushed up asset prices, especially housing through the mortgage mechanism. And how could they not? If you can afford to pay more for your house because mortgage rates are 3 %, sooner or later you pay more for it. So the competition drove up the price to fill the available affordability. Now the mortgage rate is 7%. The same thing will happen the other way around. It doesn’t happen overnight. Everyone in the market wants everything to happened yesterday. But with interest rates and mortgages, it can take a long time to seep in. But you can be absolutely sure it will.”
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Jeremy Grantham
2. Real estate bubble
“Real estate is a global bubble. It has driven house prices to very high multiples of family income all over the world: Beijing, Shanghai, Sydney, Adelaide, Canada, London. It used to be a multiple of three and a half times family income. In London it is now 10 times. Toronto is a worse ratio. Nobody can afford to buy a house. It’s not a stable equilibrium,” Grantham said.
“House prices will fall … 30% would be a pretty good guess.”
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3. Mega-cap tech stocks are monopolies
“The FAANGs are performing very well because, let’s face it, they are monopolies. And they have a lot of control over prices, obviously, and they have good profit margins. They’re not necessarily higher quality than Coca-Cola, but combined with the growth, they’re pretty damn high quality.”
4. Tesla: Love the car, not the stock
“I bought a Tesla in 2019. Red. And then I wrote in a quarterly letter, ‘what a great car.’ It was unlike anything my wife or I had ever encountered. My wife is hitting 90 [mph] on the way to Boston most times. But I said, of course, as a stock is a different story. It looks incredibly expensive. Since that day, the stock has increased 10 times. When I wrote that there were no gains, it didn’t seem like there could be any gains. In fact, it seemed rather uncertain that it would exist two years from now. They had a cash crunch,” Grantham said.
“If you say ‘how did that happen’? He…Musk was such a wonderful propagandist that he talked about the stock way before any opportunity and then he sold a lot of stock. He had a lot of assets. He talked about the stock. He sold a lot of assets over and over again, until it generated out of thin air a huge amount of real purchasing power that went straight to these mega-factories. It was almost miraculous management, generating the money out of thin air, out of nonsense and charisma.”
5. Stock market bubble
Co-host Michael Batnick asked: “Are we in a big bubble?”. “Yes, of course,” replied Grantham.
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6. What does he like about the stock market?
“I like low inflation. I hate high inflation. I like 2% stable inflation. I don’t like to see it jump around… Second, I like high profit margins. Way down, third is stable growth.”
7. Invest in QuantumScape
“I invested in QuantumScape nine years ago… I was so inspired by them that I wanted to make the biggest investment I’ve ever made… Fast forward a few years and it [публично] as a SPAC, which is very unfortunate as I have said more than once that [SPAC] are so disgusting they should be illegal, they are licenses to steal for the promoters,” Grantham said.
“QuantumScape is a brilliant research lab that went public as a SPAC four years before it had a product. So what happens? It’s $10 [цената на борсата], four times my investment. Two months later it’s $131… then the holding was worth $625 million. I wasn’t allowed out for six months… Six months later it’s $25. We sold practically everything, 10 times our money.”
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8. The crucial ingredient for a stock market bubble
“The spike that happened at the end of 2020 finally had the characteristics that had been missing for 10 years. The mania came to light. As I’ve said many times, bubbles are not just about price. If you get a price and it’s boring , it’s not a peak. You should see higher prices plus crazy behavior that’s unique, you’ve never seen anything like it.”
9. The biggest bubble in history
“Japanese real estate is the mother and father of all bubbles, much bigger than their stock market, which is the mother and father of all stock bubbles. Their real estate was over 10 times more expensive than downtown Manhattan. The center of Manhattan was very high priced, downtown Tokyo was over 10 times. I think this is the biggest bubble in history, including the South Sea bubble.”
*The material is analytical in nature and is not advice to buy or sell assets in the financial markets.
2023-09-25 13:00:38
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