The investor and chief strategist of Grantham, Mayo & van Otterloo sounded the inflation alarm, lambasting the Federal Reserve for driving up asset prices, and restated his warning that he expects the worst market crash in US history to hit soon.
Legendary investor Jeremy Grantham has sent out a warning that Elon Musk’s Tesla stock is in a bubble, and the electric-vehicle company has no chance of satisfying its shareholders’ enormous expectations.
During the interview with Bloomberg, Grantham said, “Tesla’s valuation assumes it will be not only brilliantly successful but multiples as successful as the FAANGs, which are some of the great companies in the history of capitalism. That is a big ask.” He noted that Tesla trades at several times the price-to-sales ratio of Facebook, Amazon, and other tech giants.
Saying that Tesla stock is in a bubble, Grantham remarked, “Every great automobile company – Mercedes, BMW, Volkswagen – is gearing up to go electric. Tesla is going to have some serious competition. Living up to the expectations of the stock price will be impossible.”
Grantham cautioned that investors today are more blindly optimistic compared to the period before the Great Crash of 1929 or even during the tech and housing bubbles. He said, “There’s a bigger buy-in this time to the idea that prices never decline, and that all you have do is buy than there has ever been. When the decline comes, it will perhaps be bigger and better than anything previously in US history.”
The investor noted, “This is the first time that inflation, the number one predictor of a market downturn since 1925, is being ignored. Every bull market before this one had low inflation. In order to explain today’s market, you have to assume 100% ignoring of the rising inflation, which is quite remarkable. We’ve never seen anything like this.”
He continued bashing the Fed saying, “The Fed hasn’t done a thing right since Paul Volcker, who was brilliant. All of the other chairs have encouraged a series of really dangerous asset bubbles. They overstimulated to get to 2000, they overstimulated in the mid-2000s housing market, and have they learned? Absolutely not.”
He went on to criticize the central banks for overstimulating their economies during the pandemic and driving rampant speculation. During the interview, he said, “Did you need to throw this much money all over the world so that it flows into the stock market and creates these meme stocks? This craziness that had Avis stock triple in one day? In response to Tesla and Hertz and Tom Brady, Avis said, ‘Hey dudes, we’re going to buy some electric cars too,’ and wham, it triples.”
Grantham also added, “This is more extreme in scale and size of the market cap than anything that occurred in 1929, even adjusted for the size of the economy.”