The Guardian reports on warnings from “a veteran City guru” that “an epic bubble of Wall Street crash proportions” is likely to burst1.
Jeremy Grantham, the British co-founder of the US investment firm GMO, said in a letter to clients that current investor behaviour bore the hallmarks of the mood in the run-up to the 1929 Wall Street crash.
“The long, long bull market since 2009 has finally matured into a fully fledged epic bubble,” the 82-year-old financier said.
Featuring extreme overvaluation, explosive price increases, frenzied issuance, and hysterically speculative investor behaviour, I believe this event will be recorded as one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000.
Blimey, lawks a mercy etc. Might be true of the US stock market, but not in Blighty. So it’s time for our regular-ish update on the FTSE risk premium.
As before the chart shows (i) FTSE return with dividends reinvested (blue) (ii) 10 year gilt with coupon reinvested (iii) FTSE with no dividends.
As you see, the FTSE total return is still lagging the bond, so there is negative risk premium, and the FTSE index itself is languishing where it was more than 20 years ago. Stock prices stuck in the mud not really a fully fledged epic bubble, is it.
- And Roger Bootle weighs in this morning