Jeremy Grantham who predicted a melt up in markets inspite of it being overvalued now says that trade wars might deprive the speculators of this last parabolic surge . He comments “My guess is — you have an extended, very psychologically painful, long, drawn-out series of stumbles and starts, where you go up 10% and down 15%, up 12% and down 14%,” he said. (essentially nobody will make money)
“You have this series of nonspectacular, ordinary mini-bear markets that wear away at the P/E, and eventually the economy weakens, and eventually the profit margins go down,” Grantham continued. “It helps drip, drip, drip the market back down. Not with a bang — more with a whimper.” (nothing worse than market wearing you down).
Ultimately, when it comes to Grantham’s forecast “drip” down in stocks, Trump’s trade war still takes center stage. He says now that the market was deprived of one last bout of speculative fervor, the eventual market meltdown will be less immediately severe. Rather than being spring-loaded to quickly drop, say, 50%, he says it will instead fall 20% to 25% over multiple years.
Still, Grantham isn’t ruling out a continuation of January’s dangerous “melt-up.” He says that if the trade war gets resolved or turns out to be less punishing for investors than initially advertised, speculative behavior could come roaring back.