Is it here?
Shares in Wall Street and Asia fell on Monday — sending the market scrambling for explanation. The FTSE is down about 1.3 per cent on Tuesday morning — despite BP, one of the weightiest stocks on the index, being up 5 per cent. In other words, bears are having a field day and the bulls are on the edge.
It also means some investors are beginning to call the turn in stocks.
To wit — the “Last Hurrah” theory of GMO’s Jeremy Grantham. As Clusterstock notes:
Jeremy Grantham of Boston-based GMO called the crash. He also called the rally. He also called a whole bunch of stuff before that–although, as he is the first to admit, like other value folks, he does have the habit of being early.
Not this time, though.
Within days of the March low, Jeremy published “Reinvesting While Terrified,” in which he observed that it was time to bet the farm. He soon called for a stimulus-fueled rally that would take the S&P 500 to 1000-1100, which is where we are now. He also laid out his expectation that the market would then move sideways for 7 years.
Well, we’ve hit the high of Jeremy’s sucker’s rally prediction. Stocks are now once again significantly overvalued (Jeremy puts the overvaluation at 25%, with fair value on the S&P 500 at 860). He thinks the market can go a bit higher but that it will break down next year. He’s looking for a “painful” pullback of at least 20%. A new low is not likely, but not out of the question.
You can read his full report here, or a summary on Bloomberg here.
In the meantime though here’s a chart from Grantham to ponder.
We also note that, like the 1,100 technical level on the S&P missed on Monday, the US dollar trade-weighted index looks to have broken its recent downtrend line (chart below). As Sean Corrigan, of Diapason Commodities Management, notes:
USD TWI has finally breached the downtrend line very close to the bottom of the whole crisis distribution… If there was ever a region for a corrective rally — with all that implies for carry-funded, herd-crowded risk assets and commodities - this would be as good a candidate as any…
Tin hats at the ready then.
Related links:
Stocks spooked - has Rosenberg’s time arrived? - FT Alphaville
The US stock market is overvalued by 40% - FT Alphaville
