If you are looking for something to spoil your weekend, here you go. Legendary investor Jeremy Grantham is back with another warning. This time, he argues that we may be witnessing the biggest market bubble in American history, led by the AI high flyers. In his view, a decline of as much as 70% in some of these names cannot be ruled out.
Speaking on Steven Bartlett’s The Diary of a CEO podcast, Grantham argued that today’s enthusiasm has gone beyond healthy optimism. He pointed to examples like SpaceX, saying some of the narratives being used to justify valuations are becoming increasingly detached from reality. His comment that SpaceX’s addressable market is “a quarter of global GDP” struck him as the sort of story investors tend to embrace near major market peaks.
His broader concern is not just about stock prices. If the market’s biggest winners reverse sharply, layoffs could follow, household wealth would take a hit, consumer spending would weaken, and the economy could come under pressure. History shows that when large asset bubbles burst, the consequences often extend well beyond Wall Street.
So what does Grantham recommend? His advice is surprisingly simple:
• Around 60% in a diversified portfolio of non-US equities.
• Around 5% to 10% in precious metals such as gold and silver.
• Some exposure to real estate if appropriate.
• The balance in bonds.
Whether you agree with Grantham or not is another matter. He has been warning about bubbles for years. As always, nobody knows exactly how this ends. We cannot control markets, interest rates, or the next headline. What we can control is our portfolio construction and, more importantly, our emotions. In investing, staying calm during periods of euphoria or panic is often more valuable than trying to predict the next market move.