Legendary investor Jeremy Grantham says he’s avoiding real estate and said the hype around artificial intelligence had “elements of new bubbles” in the sharemarket.
He also said if he had to invest in equities, he favoured quality stocks.
Jeremy Grantham is calling more bubbles in real estate and the sharemarket AP
Mr Grantham, 84, who famously called Australia’s property market a bubble in 2010, said he now believed that real estate globally was over-valued and investors should be “very careful”.
“The last 20 years of declining mortgage rates have driven real estate to really crushing high multiples of family income,” he told the Livewire Live event in Sydney, where he appeared virtually on Tuesday.
“It’s so high that young people can’t buy a house: that applies every bit as much in the US, Canada, the UK, Australia, New Zealand and most of Europe.”
Mr Grantham, who founded Boston-based hedge fund GMO, was heavily criticised in Australia for calling a bubble in house prices and said he believed this was due to the country’s inherent optimism.
“If you want to challenge the housing market and suggest it’s in a bubble in the UK or the US you have a civilised conversation. If you do it in Australia, you will have world war three,” Mr Grantham quipped.
He said the key measure for overvaluation was looking at house prices relative to incomes which had increased from three times in the US to six times. In London, he said it’s been 10 times since 1998.
“With Australia, God knows what it is. At 10 times family income, how does the average person get to buy in a new house?”
Mr Grantham added that inequality was the “poison of the capitalist system” as he warned about rising populism in Western democracies.
He cited the modest 10 per cent increase in wages, after adjusting over the last five decades, and said disgruntlement toward the “rich and powerful” was the only issue most voters agreed on.
“The US does need to be saved from the rich and powerful. I can’t speak to Australia, but there’s a whiff of that too,” he added.
Mr Grantham is no longer an active investor at the Boston hedge fund, but does have responsibilities for a $US1.5 billion ($2.3 billion) endowment.
The hedge fund veteran told delegates that he did not believe a new bull market had begun in the US and that the AI-fuelled rally in mega cap US tech stocks was masking a needed correction.
“There’s never been a bull market in history that started from such high prices,” he told delegates in Sydney.
“The end of these great bubbles are hard enough anyway without having the elements of new bubbles come in to scramble the thinking, and that’s precisely what has happened.
“A dozen giant American stocks have had a hell of a run on the back of AI. The problem is that prices are incredibly high. And basically the economy is beginning to unravel.”
“So it’s a head fake, but it’s a hell of a head fake.”
Mr Grantham said if he were to own US stocks he would concentrate on quality – an investment factor that he said was overlooked by academics as a sustainable source of returns,
“I would concentrate on non-US stocks and if I had to buy US stocks as most people do, I would concentrate on quality.”
Mr Grantham, who is a strong advocate for action on climate change said he also favoured stocks tied to the theme.
“They will have an incredible top-line revenue growth driving forward by Tesla or electric vehicles versus the old VWs and old-fashioned cars.
“The world of climate change is finally waking up governments all over the world and getting behind it and subsidising it.”
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