In a recent interview with the Associated Press, Jeremy Grantham warned that a slump in corporate profits would cause stocks to tumble again.
The investor said that earnings will come down. He noted that the first shoe was the compression of valuation multiples for stocks.
In a year's time, the S&P 500's fair value would be around 3000, but it could trade below that level for a while. The benchmark index is currently around 3,940.
When investors expect the Federal Reserve to start cutting interest rates, the stock market could rebound. The rallies would probably only last a couple of weeks, as they have in the past, he said.
Earlier this year, he warned of a crash, a recession, and a historic loss of wealth due to a "super bubble" in asset prices.
He told the AP that the market downturn could last up to three years. Many people who buy into bubbles don't make a lot of money for a long time.
The Fed hiked rates in order to control inflation. The US economy could plunge into recession if tighter monetary policy and soaring food, fuel, and housing costs are not stopped.
The boom in asset prices was one of the great speculative periods, fueled by near-zero interest rates, the Fed's aggressive bond purchases, and fiscalStimulus.
He said that people were at home and getting a check from the government so why not speculate. He warned that cheap ways of investing, such as zero-commission trading, can end up being very expensive and that money usually flows from amateur to professional over time.
The fund manager said that people in their 40s were the biggest loser when a bubble popped. Young people have the chance to invest cheaply and compound their wealth over the course of several decades, while retirees have the chance to invest for the rest of their lives.
The time is right to shift money from the US to European companies. He shows what investors should buy.
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