There a few investors who are able to claim they publicly predicted both the dot-com bubble as well as the 2008 financial crisis. One of them decided to make a rare public appearance on live television today, sharing his bearish predictions of the future. Jeremy Grantham, a legendary albeit reclusive investor went on to say today that investors should be warned that the next two decades will see the markets struggle to gain mediocre returns at best.
In a rare interview with CNBC, he went on to say that investors shouldn’t expect a massive drop or collapse to what he sees as the longest bull market run in history. Founder of the Boston-based asset management firm GMO, a company with over $118 billion in assets under management.
“This will be limping along; three steps down, two steps back. It’s not a typical experience,” Grantham told CNBC’s Wilfred Frost on Thursday. “I was really hoping there would be a magnificent bubble ending to this, as there had been to the three great recent experiences. They were all classic. They ended with euphoria and a rapidly accelerating stock market. They’re easy; you know they’ll be followed by an abject decline. This one, I was hoping that would happen. It doesn’t look like it will and, therefore, you’re going to have a decline of a different nature.”
Grantham is considered one of the most respected voices in the financial markets, albeit lacking the mainstream popularity of figures such as Warren Buffet. Back in 2011, he was included in the 50 most influential figures according to Bloomberg. He also started one of the first index funds back almost 50 years ago.
He went on to say that “In the last 100 years, we’re used to delivering perhaps 6%” returns, but unfortunately, he believes that we’re going to be seeing 2% or 3% returns over the coming 20 years. “This is not incredibly painful, but it’s going to break a lot of hearts when we’re right.
Recently, the Federal Reserve stayed its hand and refused to raise interest rates, a move which saw equities jump in response. Other markets, such as commodities, have been going through a bull run since the beginning of the year. But despite this, there are signs of an economic turnaround. Most worrying to investors is weak economic data coming from China, which ended up revising their forecast growth rate from 6.5 percent to 6 percent.
At the same time, Grantham worries that central banks and institutions will have little power to reverse this trend. Although quantitative easing and cutting interest rates have helped bolster the economy, the Fed has kept its benchmark rate at zero since the 2008 crisis until 2015, and despite raising the rate several times, it still remains below historical levels. The Boston-based asset manager would say that “you can’t get blood out of a stone,” and that “At these prices, even the bears and the bulls and everyone in between at GMO agree that over a long horizon, like 20 years, the U.S. market will be delivering 2 or 3 percent real [returns].”
For domestic investors who are searching for reasonable gains, Grantham advises people to look to emerging markets where he believes reasonable gains of up to 8 percent per year are still possible.