Jeremy Grantham warned last year a “superbubble” spanning multiple assets would crash spectacularly. The elite investor recently detailed how the AI craze has altered his dire forecast. Grantham said AI was unlikely to interfere with the bubble bursting, but could limit the fallout. Loading Something is loading.
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Jeremy Grantham sounded the alarm on a multi-asset “superbubble” last year, and predicted it would end with a historic crash. He shared his view on the artificial-intelligence craze that has boosted stocks lately in a recent WealthTrack interview.
The veteran investor and GMO cofounder said the AI frenzy probably wouldn’t interfere with the bubble bursting. But it could, meaning he now puts the chances of a severe decline at 70% instead of 85%.
The market historian also called for AI to be regulated given its dangerous potential, and advised investors who’ve made a fortune on Big Tech stocks this year to take some money off the table.
Here are Grantham’s 8 best quotes, lightly edited for length and clarity:1. “I’m a little bit disturbed by the emergence of the kind of mini-bubble in artificial intelligence. I’m trying to work out if that will be quick enough and strong enough to alter the final stage of this bubble.”
2. “Lord knows this was complicated before AI raised its ugly head. We had inflation, the Fed, how quickly would rates go up, how far would they go up, how would the war play out. Oh my hat, it goes on and on.”
3. “My guess is it’s not operating on the timeframe of this bubble. We have a year or two to have a fairly traditional bubble losing air, recession, decline in profit margins, and some grief in the stock market. We can do that before the real effects of AI kick in.”
4. “I suspect it already has elongated this process somewhat, and there is some fairly small chance that it will mitigate it so that we only have a modest decline. That’s why I’ve taken my probabilities back from 85% certain to 70% certain. (Grantham separately told the Wall Street Journal that AI could shore up stocks for a couple of quarters, but it wouldn’t stop the bubble from bursting.)
5. “History says if you handle the economy very badly, you might end up like 1929. If you handle it pretty well like 2000, you still get a respectable recession, one that will do the job and bring the market down. That was about as easy a recession as you will ever get, a genteel recession, and still the Nasdaq came down 82%.”
6. “Artificial intelligence has the biggest scrambling of opinions of the future that one has ever seen. Some of the brightest people on the planet are saying, ‘It’s all nonsense, it’s just a parrot learning by trial and error.’ Other people are saying, ‘It will change everything, it will double productivity for decades.’ And there’s everybody in between.”
7. “Imagine a world where you have a million devices that all learn everything simultaneously, and they have acquired an IQ of 200. This is where you start to panic, and decide that you better destroy them or limit them quickly, before they get ideas above their station. I agree with the group that says they should be regulated.”
8. “A good reflex would be to think that they’ve been extremely lucky. They’ve played right into the strong speculation around artificial intelligence, they’ve made an unprecedented 25% over anything. I would at the very least handsomely take profits, if I were them.” (Grantham was offering advice to investors who’ve made bank on Big Tech stocks this year.)