Transcription
Jeremy Grantham, the billionaire investor, just said that we are on the verge of a 70% stock market collapse. Take a listen.
"The collapse is on the horizon."
"Yes."
"And what does that mean for the average person? What's going to happen?"
"What's going to happen is the high-f flyers will probably come down a lot. The high-f flyers, the stocks that have gone up the most, AI and the more exciting stocks with the biggest moves historically would be expected to come down the most. From these unprecedented levels, a 70% decline would not be unexpected."
The reason why people like to listen to Jeremy Grantham isn't just the fact that he manages $80 billion in assets, but because he also predicted the 2008 great financial crisis and the 2000.com bubble bursting. So, in this video, I don't just want to talk about his warning. Instead, I want to go a little bit deeper and dissect his analysis as to why he believes that the stock market is overvalued and do for a big crash with reasoning. That way, you can understand what he thinks. This is not to tell you what you need to think. This is not to tell you what is going to happen, but to help you understand how to be a smarter investor. Because even if you don't believe him, it pays to pay attention to different people's opinions. So, let me break this down.
Jeremy's core argument is about the valuation of the stock market, that the stock market is way too overvalued relative to the economy.
"The value of the stock market compared to the GDP with with modifications. Uh this is uh the most expensive market in American history."
Now, let me show you the actual math. That way you can see where he's coming from. And let's start with the Great Depression. In the Great Depression time, the stock market was valued somewhere around $150 billion. And I'm estimating that back during the Great Depression time, the economy was actually measured through a number called GNP. Today it's called GDP. But it was valued at approximately we'll call it a hundred billion dollar, which means the stock market to GDP ratio was 150%. Again, GDP is a measure of our economy. It just measures all of our spending. But this meant that the stock market was about 1.5 times the size of the economy. And then during the Great Depression, we saw the stock market fall by approximately 89%.
Now, let's fast forward to the 2000.com bubble bursting. During this time, the stock market peaked at right around $15 trillion. The economy was worth something about 10.25 trillion, which means the stock market to GDP ratio was approximately 145% because now the stock market was worth a lot more than the economy. And then after the dotcom bubble burst, the NASDAQ, which is made up of primarily tech companies, fell by around 78%.
Now, let's fast forward to right before the 2008 great financial crisis when the housing market collapsed. What we saw happen here was that the stock market hit a peak of around $19 trillion in the United States, while the economy in the United States grew to approximately $14.7 trillion, which means the stock market to economy hit a peak of right around 130%. Then after the bubble burst, we saw the S&P 500 fall by around 57% while the housing market got decimated.
And this brings us to where we are today in 2026. And this is where things get very interesting. At the time of me recording this video, the United States stock market is valued at about $75 trillion, while the economy in the United States GDP is measured, I'm going to round up here, at around $32 trillion, which means the stock market to economy ratio is now at a record 230 approximately 34%. And this is why Jeremy Grantham says what's going to come next is going to be a big downturn for the United States stock market. Again, this is what is TBD. But this is where you want to pay attention to why he believes that the stock market is getting so overheated relative to the economy.
By the way, because of these major changes that we're seeing in our economy right now, I put together a brand new investing master class that shows you how these changes are creating investment opportunities right now for investors. So, if you're an investor and you want to see how this is creating an investment opportunity on top of changes with the dollar, on top of changes with China, on top of changes with AI, I broke it all down on where those opportunities are right now and why it's creating huge opportunities for investors. It's a free investing master class. When you sign up for it, you're also going to get access to market briefs, which is my newsletter for investors completely for free. So, if you want to watch this investing master class for free, all you have to do is sign up and I have that link for you down in the description below.
Now, before you panic, I want to remind you of one thing. Recessions happen. Market crashes happen. Nobody knows when. Over the last 100 years, we have seen 16 recessions. Over the last 100 years, we have seen 25 market crashes. So, for the next recession, it's not a matter of if it's going to happen, it's a matter of when. And that's the part that nobody knows.
Now, I'm going to show you in this video when Jeremy Grantham believes that the market is going to crash. But I just want you to understand before you panic to understand that market cycles are a part of our economy. They are a part of our economic system and they create investment opportunities for the financially savvy while the average person panics and loses money. So, just make sure you understand that for what I'm about to go over.
Now, the reason why Jeremy Grantham believes that the market is so overvalued right now is because of artificial intelligence. Now, he does not believe the AI is a scam or does not is going to actually change the economy. He believes that it's going to transform our economy in a way that we've never seen before because he says that it's like combining the railroad with the internet into one new technology. And this is what he says is creating this massive bubble because everybody sees that this technology is changing. Everybody can see that it can create a bubble. And so all this money is pouring in trying to help build this new transformative technology. And now it's a matter of when we're going to see that correction because the stock market has now grown significantly past the economy. And one of two things he says are going to happen. Either the stock market's going to have to come down to match reality with the economy or the economy is going to have to grow massively to match where the stock market is. And according to him, the stock market is going to come down. And he says that the peak was because of the SpaceX IPO where we saw this multi-trillion dollar valuation for the SpaceX stock while the company is losing billions of dollars every single year. And he says this is how you know that we have hit peak bubble time.
Now the reason why Jeremy Grantham keeps saying 70% is because according to his math, that's how much the stock market has to fall to go back to the quote unquote normal trend line to then normalize in the economy. Again, we've seen that happen in the past before. That's why he says, "Well, it's not unheard of to see it happen again."
Now, this is where we've established a few things. Number one, we've established that the stock market is a lot more expensive than the United States economy. We've established recessions happen and market crashes happen. They're a part of our economic system and we've seen them happen in the past, especially when the stock market gets overheated. Now, the question is, well, when will we see the next recession? It's not a matter of if we're going to see it. And according to Jeremy Grantham, it could be anywhere from two weeks to two years from now. Take a listen.
"My guess is sometime between two weeks ago, two weeks from now, 2 months, two quarters, and conceivably two years. The timing is always terribly uncertain. The market's going to peak out and drop back to trend. And getting back to trend from here is uh closer to a 70% decline than a 50% decline."
"A 70% decline, you think, is in order?"
"Yes, I do. And and and bear in mind, we said a 70 75% decline for the NASDAQ in 2000 in our quarterly letters and it went down 82."
Now, let's go with the hypothetical that he's right. The thing that I want you to understand about the stock market is the stock market can be illogical longer than you can be liquid. What that means is we've seen many periods in history where the stock market did not make any sense. You've probably seen this before as well, but the stock market cannot make sense longer than people can stay out of the stock market or stay shorting the stock market. If you've ever seen the movie The Big Short before, what happened in The Big Short is people said, "This housing market looks like it has to collapse. Things just don't make sense." But the markets kept going higher and higher and higher despite all the research showing that markets should be going down. And then it wasn't until a lot of time later, years, that we started to see that pain in the stock market. And so Jeremy Grantham is saying the same thing when he was calling the 2000.com bubble bursting. He was saying it years early. And his clients were getting very upset. They were firing him and leaving him because the markets were booming while he was saying that markets were going to collapse. And then eventually markets did collapse after the 2000 bubble bursting. So there's this balance that you have to understand that nobody can time the market. And Jeremy Grantham says that the market is going to collapse because of this problem right here. He might be right, but nobody knows when.
And this is where on the other side, what Warren Buffett says is that time in the market beats time in the market. Now, I'm just a random guy on YouTube, but this is why what I say is AB, always be buying. And then when poop happens, which is panic, leads to overselling, leads to opportunity, leads to profit, that's when you come out and buy even more. When markets go down, because we know markets go down, it is a part of our economic system. This is a field day for investors. I know what causes a lot of pain. And I know it's a bad time for a lot of people, but for the financially savvy, the people that now are prepared, this creates the biggest and best buying opportunity of all time because now you can come in and buy good investments at a discounted price. That's the way that I want you to be thinking. Nobody knows when markets are going to crash. Nobody knows what's going to happen in the market today. Nobody knows what's going to happen tomorrow. Nobody knows what's going to happen in two years from now because we could see a new war happen. We could see new changes with government policy. We can see who knows what's going to happen. Well, all those things can move markets in between.
Now, there are some factors that are very clear. The stock market relative to the economy is the most expensive we have ever seen. There's a couple things that could happen. The economy could grow to meet the stock market or the stock market could crash to meet the economy. In any case, the way that people build wealth is by owning assets. Period. Now, you could try to be that person that tries to time the market, but I'm going to tell you from experience that the people that try to do that often fail. I'll give you a couple examples.
When the 2020 pandemic hit, this was the first time that I was making videos on YouTube during a real market downturn. And during the 2020 pandemic, I was talking about how I was buying on the way down. That I was buying every time we saw a big drop in the market. Every time we saw the circuit breaker get hit, remember when the stock market fell so hard that the stock market had to be frozen? That was a great buying opportunity. I had no idea what was going to happen. Remember, it was a very scary time. Nobody knew what the pandemic was, how long it was going to last, what it was going to do to the economy. We just saw sports stadiums getting shut down, cities getting shut down, the economy getting shut down. It was it was a weird and crazy time. So, I was making videos about how I was buying on the way down. I was buying in phases. As the market fell down even harder, I was buying even more aggressively. And I would get these floods and I mean true floods of comments of people saying, "Jasp, why in the world would you be buying right now? Markets are going to collapse. It's going to completely destroy people, the economy, etc." And yes, that's a possibility. But if you have time on your side, like if you plan on being an investor for the next 10 years, well, either over the next 10 years, we're all going to die or markets are going to eventually recover. I mean, there's we don't know what else is going to happen. I hate to be that dire, but I mean, that's the way I thought about it. So I was buying what I did not expect and I have an entire financial technology firm. We have an entire research division. I have spent a lot of time studying financial history. This is what we do. We did not expect the Federal Reserve Bank to start money printing and start boosting the stock market the way that we did in 2020. I don't think anybody could have predicted that. So we went from this fastest stock market crash in the history of time to the fastest stock market boom in the history of time. So the people that were trying to time it on the way down missed the buying opportunity because now what happened is as market started to go up, the people that were waiting for that perfect buying time said this is just a dead cat bounce. This is just a small bounce. It's going to crash even harder. And then they said, oh, now I missed the bottom because markets went up 5%, 8%, 10%. There's no point for me to buy now. And then markets rallied 30%, 40%, 50% even more on top of that. So people missed out on those huge gains.
We saw the same thing happen in 2022. The stock market fell by about 20%. Same thing. I was making the same videos saying how I'm buying. I don't know how far down it's going to go. I'm just going to keep buying in phases as it goes down. And the further down it goes, I'm going to buy even more aggressively. Well, 2023, 2024 markets are breaking brand new record highs again. So, the way that I go about it, and I don't recommend what I do to anybody else because I can't. I'm not a financial adviser. I'm just a random guy on YouTube, is number one, AB, always be buying. And when poop happens, be ready to take advantage of that poop because panic leads to overselling, leads to opportunity, leads to profits. And we've seen that panic and overselling happen time and time again. The thing that you want to understand is what is your investing strategy? What do you want to be investing in? That way you can be ready to capitalize on investment opportunities when they happen. Not if they happen, but when they happen. That's the way that I want you to be thinking because when those opportunities happen, you want to be ready to be able to capitalize on them.
Now that I went off script and gave you a rant about my opinions and my thoughts, which is not what I wanted to talk about, let me go back to what Jeremy Grantham actually recommends. Uh, because this is one of the things that he's been talking about publicly. So this video would not be complete without me talking about what he says investors should do. Again, don't take this as investment advice. I'm just here to report about what he says.
The first thing he says is he's not a fan of holding any United States stocks right now. In fact, he's a much bigger proponent of investing in international stocks and international markets. By the way, there are many funds that you can buy in the United States that give you exposure to international markets. He then says you should have a decent chunk of your portfolio into commodities, things like gold. And then he says you should put the rest of the money into bonds that are paying somewhere between 4.5% to five or five and a half% in interest. That way you're getting some interest on your money while you're waiting for a downturn to be able to purchase. Again, that's what he says. He also believes that Bitcoin is going to go down to zero because he doesn't believe that there's any real value in Bitcoin.
Again, if you want to see how all these changes are creating opportunities, I have my free investing master class for you down in the description. Again, the thing that you want to understand as an investor is where the money is moving. That way you can buy good investments, especially when they are on sale. Investing your money is hard and on this channel I teach how you can start investing your money yourself. But for some of you, working with a financial adviser, somebody who is a professional will be a better option because now it's more hands-off and you can work with a professional who will manage and invest your money for you. And that's why I partnered with my sponsor, Money Pickle. The reason why I like Money Pickle is because first they get to know you and what your needs are and then they match you with a vetted financial advisor who would be best suited for your needs and then they give you a free consultation call with the financial advisor. That way you can get a feel of the financial advisor and see if they're right for you or not. That way you don't have to go through a high pressure sales process with somebody who might not even be a good fit for you. If you're interested in learning more and you have over $100,000 in assets, the process is pretty simple. All you have to do is complete a short form. I have that link for you down in the description. It takes a few minutes to complete and once you do that, Money Pickle will review your answers and then pair you with a vetted financial adviser who they believe is best suited for you. It's a completely free process. That initial consultation again is free. And then if you decide to move forward, then you can negotiate and discuss what your rates and terms look like with that financial advisor directly. So if you want help managing your money and you want to work with a vetted financial advisor, my sponsor, Money Pickle, can help get you paired up with a financial advisor at no additional cost. So if you want to learn more, I have that link for you down in the description.
So, what we talked about in this video is that Jeremy Grantham is this famous investor who has called many different crashes and recessions in the past is now saying that the stock market is extremely overvalued and is due for a 70% downturn. And the number one reason why he says that is because the stock market is very expensive relative to the economy. And we went through some numbers. We looked at the Great Depression where the stock market relative to the economy was trading at 150%. We looked at the 2000.com bubble bursting where the stock market relative to the economy was trading at 145%. We looked at the 2008 great financial crisis where the stock market was trading at about 130% of the economy. And now fast forward to today and the stock market is trading for around 234% of the economy. Which is why he says that this is the most expensive stock market in the history of time. Not just because of the valuation of stocks, but because of the valuation of the stock market relative to the economy. And that's why he believes that the stock market is due for a 70% downturn. The question is when is this downturn going to happen? Because he says it could be anywhere from 2 weeks to 2 years from now. But like we've seen in history, nobody knows when. 16 recessions over the last 100 years. 25 market crashes of the last 100 years. A recession always coming. Nobody knows when. And before the 2000.com bubble bursting, Jeremy Grantham was vocal about this internet bubble that was existing. And it took years for that market to actually turn downwards. And he lost a lot of clients during that time. But eventually he was right when markets did turn downward. Now the question is when is it going to happen again? Because he says that we're seeing a much bigger bubble because of AI because AI is transforming the economy like the railroad and the internet both at one time. And again, this is where nobody knows what is going to happen. He believes that the way that you should go about playing this is by owning international stocks, owning commodities, and then owning bonds.
Now, the thing that I like to teach is that, well, number one, Warren Buffett always says time in the market beats time in the market. If you were the worst investor in all time and you invested right before the 2008 crash and you bought right before the 2000.com bubble bursting or you bought right before the great depression at the peak, you would still be richer if you just held on through the downturn 10 years later. And this is where nobody knows when the markets are going to go down. We just know that they are going to go down. It's a part of our economic system. Now when you understand that this is where my philosophy comes in which is AB, always be buying. Buy every week, buy every two weeks, buy every month, always keep working to accumulate and then when poop happens, panic leads to overselling, leads to opportunity, leads to profits. Understand that that creates some of the biggest and best buying opportunities. So keep some extra money aside to be able to come in and buy when markets are going down. That's where I believe the biggest opportunity is because we always know that a downturn is coming, just nobody knows when.
Again, I have a free investing master class to show you how all of this is creating investment opportunity. If you haven't watched or signed up for that yet, I have that link for you down in the description. And if you got value out of this video, the best thank you was a referral. So, if you could please share this video with a friend, family member, colleague or fellow investor. That way, we can continue to spread this type of financial education. Thank you.
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