Legendary investor Jeremy Grantham says he's certain the stock market is in a bubble after its 'truly crazy' rally this year

• The legendary investor Jeremy Grantham told CNBC on Thursday that he was more convinced than ever of a bubble in the stock market.
• "The more spectacular the rise and the longer it goes, the more certainty one can have that you're in the 'real McCoy' bubble," said Grantham, the cofounder and chief investment strategist of the asset-management firm GMO.
• The investor, who's notable for calling major market bubbles, first expressed concern about a stock market bubble in June.
• Grantham said that the bubble was disconnected from economic realities and that neither a coronavirus vaccine nor fiscal stimulus would change its trajectory.
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The legendary investor Jeremy Grantham told CNBC on Thursday that he was certain the stock market is in a bubble following its "powerful, rapid, and, in many areas, truly crazy" rally from March lows.

"The more spectacular the rise and the longer it goes, the more certainty one can have that you're in the 'real McCoy' bubble," said Grantham, the cofounder and chief investment strategist of the asset-management firm GMO.

Grantham initially expressed fears about a bubble to CNBC in June, when he told investors to have zero exposure to US equities and said he might be witnessing the fourth major market bubble in his career. The S&P 500 has gained roughly 14% since his call, and Grantham said this and "crazy behavior" from investors were only making him more certain the US is in a bubble. "You want to see not just the market rise but, if anything, an acceleration. And the rate of market rise since the turn in March/April has been nothing sort of sensational," the investor said.

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Grantham also said the stock market had its own "psychological node" and behaved independently of economic realities.

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"The market can go up on bad news and go up on good news," Grantham said. "It can interpret a Trump victory as bullish and then seamlessly interpret a Biden victory as bullish. There are all the characteristics of a bubble. There's nothing much you can throw at when it gets going."

He added that an effective coronavirus vaccine or more fiscal stimulus in the US wouldn't change the fact that the stock market is in a bubble. Grantham has successfully called three market bubbles: Japan's asset-price bubble in 1989, the dot-com bubble in 2000, and the housing crisis in 2008.

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On Thursday, he said one year would be a "stretch" for the bubble to continue inflating while two more years of rising prices would be "extremely unlikely."

"I've never had any illusions about my ability to time the bubble breaking; I have a very low definition of success," Grantham said. "It's just sooner or later the market will be lower than the point at which I suggested you should get out."

He added that low, risk-free rates from the Federal Reserve had pushed up the prices of assets.

"The one reality you can never change is that a higher-priced asset will always produce a lower return than a lower-priced asset," he said. "You can't have your cake and eat it. You can enjoy it now, or you can enjoy it steadily in the distant future, but not both. And the price we will pay for having this market go higher and higher is a lower and lower 10-year return from the peak."

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