Grantham's GMO Colleague Calls Stocks ‘Obscenely Overvalued’

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  • James Montier says U.S. equities are in a cynical bubble
  • Allocation strategist: ‘I prefer to leave the party early’

Jeremy Grantham

Photographer: Daniel Acker

GMO’s Jeremy Grantham, known for his bearish views on stocks, recently wrote that the market was showing signs of heading for a late-bubble “melt-up” this year. His colleague James Montier isn’t as optimistic.

Montier, in a paper published Tuesday, described U.S. equities as “obscenely overvalued” and said the market is in the grip of a cynical bubble.

“Those buying the asset in question don’t really believe they are buying at a fair price, but rather are buying because they want to sell to someone else at an even higher price before the bubble bursts,” wrote Montier, a member of GMO’s asset-allocation team. The Boston-based firm managed $74 billion as of Sept. 30.

Montier cited the Shiller price-earnings ratio, which shows that U.S. stocks are at the second-most-expensive level ever, topped only by the technology bubble of the late 1990s. The ratio compares stock prices to the average of 10 years of earnings adjusted for inflation. He also referenced a recent Bank of America Merrill Lynch survey showing the highest level ever of fund managers saying the market suffers from “excessive valuation.”

Montier also said that bubbles are not all the same and that it was possible to have one without the great euphoria typically associated with bubbles.

Montier acknowledged he couldn’t predict when stock prices will collapse but said some investors are sure to be “crushed in the stampede” as people try to get out at the same time.

“As for me, I prefer to leave the party early,” he wrote.

— With assistance by Adam Haigh

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