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Is a 70% Crash Coming?… Grantham’s Record Problem… What Happened to the 1992 Magazine Cover… Fear of Fear That’s Not There… Earnings Decline Against Bears
Last week, Jeremy Grantham, the British investor, billionaire and co-founder of GMO, went all out:
This is the most expensive market in American history.
My guess is that sometime between two weeks, two weeks from now, two months, two quarters, maybe two years – the timing is always highly uncertain – the market will peak and then return to the trend.
The return to trend from here is closer to a 70% decline than a 50% decline.
Do you find this useful?
At some point… between two weeks and two years from now… we will have a major collapse.
I don’t mean to disrespect Grantham – he is a legendary investor – but to me, this comment is useless. Worse still, it can be financially damaging.
On 24 January 2023, Grantham issued his official 2023 forecast letter entitled “After a period of time, return to the meat grinder!He warned of a possible collapse of 50%.
Then in April of 2023, he told… We study billionaires podcast that the modern “super bubble” was about to burst.
In July 2023, he put a 70% chance of an accident matching the patterns of 1929, 2000 and 2021.
Not only has there been no such collapse since Grantham’s first call in January 2023, but shares have soared since then. The Nasdaq 100 rose more than 150%.
If you no longer have stocks based on Grantham’s call, you have missed your account by more than doubling. This is not a rounding error, but rather a potential delay of retirement by several years.
The truth is that we are will Eventually the market collapses. But I don’t think it will be tomorrow, next month, or even this year. Today, I want to highlight one main reason why.
To be clear, I’m not saying that the next six to 12 months will be smooth, or even that we won’t suffer a 10% to 15% decline somewhere along the way. But I think the “collapse” is still far on the horizon, which means one thing…
It is still a good time to invest and make money before the pain eventually arrives.
A magazine cover, a stock chart, and a lesson about peaks
Older investors like myself remember 1991 when the US economy was working its way out of the recession.
Car sales have collapsed to the lowest level in the next 16 years. Investors were bullish on Detroit, and they had a reason to be – time She even published a cover story in November asking a blunt question: “Can GM survive in today’s world?”
Thirteen months later, the mood had completely changed…
The economy was strengthening, car sales were rebounding, and… time He showcased a new cover featuring the CEOs of the Big Three automakers. But this was not despair. He was victorious: “The Big Three – How Detroit Shifts to High Alert.”
Same company, same industry, 13 months apart.
So, when is the best time to buy GM stock? At the point of despair or at the point of hope?
In November 1992, during the “Despair” coverage, GM shares were trading at about $28.
By December 1993, during the “Hope” coverage period, prices had risen to just over $55, nearly doubling.
Then, just 12 months after that cap hit, GM shares fell by about a third, back to $35.
Despair precedes gains. Hope precedes losses.
This teaches us a crucial lesson about investment peaks and valleys that we would be wise to remember today…
Whether on a specific stock basis or across broad markets, “tops” tend to form when investors are overly confident, optimistic, and greedy, while bottoms are typically formed when investors are desperate and desperate.
Alan Greenspan coined the phrase “irrational exuberance” to describe precisely this dynamic during the run-up to the dot-com. and NewsweekThe famous 1999 cover depicting the FOMO of that era was published just months before the Nasdaq collapsed.
So, here’s the question…
Is this market feeling irrationally energetic?
Sentiment data tells a different story than headlines
If euphoria and frenzied FOMO are the prerequisites for reaching the top, then today’s numbers do not support the “we’re there” thesis as clearly as Grantham’s bubble frame suggests.
Yes, some pockets of the market are experiencing FOMO, but as we’ll get to, it’s somewhat justified by profits. More on that soon…
First, focusing on sentiment, let’s start with individual investors…
The latest American Association of Individual Investors poll last week shows bullish sentiment at 44.9%. This is higher than the historical average of 37.5%, so it is not nothing. But they are much lower than the 60% to 70% readings that characterized the actual dot-com peak.
Retail investors look more like accumulators than blind speculators at the moment – surveys of AI-focused investors show that the overwhelming majority plan to hold or add to their positions, with only a small minority looking to reduce exposure.
Now look at the wealthy investors…
A recent Janus Henderson survey of wealthy and high-net-worth investors found that 67% of them are very concerned about the AI bubble bursting within the next 12 months.
This is not complacency or “YOLO” risk. This is a market that is accelerating upward while two-thirds of the most sophisticated participants keep an eye on their interests.
Finally, on the institutional side, Bank of America’s Global Fund Managers Survey shows that funds are still structurally long-tech, but positioning has been significantly facilitated. Managers are taking profits on more expanding hardware names and shifting into broader stocks rather than doubling down on their shares.
If we put them together, we get a market that is climbing the “Wall of Concern” – high conviction combined with persistent and widespread caution.
This combination has historically been a feature of sustained bull markets, not a sign of impending tops.
A true summit tends to require something close to universal agreement that prices can only go up — remember Barstool Sports founder Dave Portnoy, during the day trading frenzy of 2020 when he said “stocks only go up” and “only losers get profits.”
Do you see this feeling today?
I see the opposite: a widespread and well-documented anxiety underlying persistent buying.
However, caution remains crucial
The lack of rabid FOMO is not an invitation to do everything.
Grantham’s framing deserves real respect, and there is at least one place where the data show something worth watching closely.
Here is our overgrowth expert Luke Langoeditor Innovation investoron what he calls an IPO warning:
Bloomberg data shows that IPO value tracking in the second quarter of 2026 toward $400 billion — nearly double the latest quarterly average — is a pattern worth watching precisely because it occurred near inflection points in previous cycles.
We do not make a market crash call. The specific circumstances of each previous spike were different, and the fundamentals of today’s AI infrastructure are categorically stronger than the earnings realities of the dot-com era, the leverage realities of the GFC era, or the inflation shock of 2021.
But historical patterns that have repeated across multiple distinct market cycles deserve respect, and the intellectually honest position is to acknowledge that pattern while maintaining our constructive stance on AI infrastructure.
Locke recommends investors think about position size, keep the powder dry in anticipation of potentially large drawdowns, and stay focused on… The highest quality and most defensible names in the AI infrastructure trade Instead of speculation.
But with these defensive measures in place, he concludes:
The summer of artificial intelligence is intact. We are monitoring the IPO spike carefully. Both things can be true.
This position rings true to me.
IPO mania He does Some instances of FOMO reflect exaggerated fear, and have appeared near inflection points before – not as a guaranteed breakdown signal, but as a pattern worthy of respect. However, this case of FOMO is focused on a few stocks that are going public.
“But, Jeff, you’re missing the fear and greed in AI corners like memory trading.”
Great point! The memory and semiconductor business is very crowded today. I will be surprised if we don’t see some double-digit profit taking over the coming weeks. In fact, we’re seeing some of it today as I write. It can lead to a longer period of poor performance.
But taking profits is not the same as collapsing. There is a big reason why there may be large numbers of buyers after a wave of profit taking…
Profits.
Does today’s earnings backdrop support the bubble burst narrative?
Memory is big business today – but that’s for a reason.
A week ago today, the memory giant micron(in) It told investors to expect revenue of about $50 billion next quarter. Analysts expected $43.6 billion. That’s not a beat – it’s a different zip code.
The Micron explosion forecast is a microcosm of the broader AI supercycle that is firing the entire chip sector on all cylinders. According to research by the International Data Corporation (IDC), total global semiconductor revenue is expected to rise by 52.8% to reach $1.29 trillion in 2026.
Here’s more from IDC:
The memory sector is at the center of this transformation: DRAM revenues alone are expected to nearly triple in 2026 to reach $418.6 billion, driven by demand for high-bandwidth memory (HBM) and DDR are super scalers and AI infrastructure providers.
But this profit power is not limited to memory chips only. It is wider…
Last Thursday digestI’ve highlighted a chart from Alpine Macro that shows how today’s technology boom has a resemblance to the dot-com era He didn’t do that He has…
Real earnings growth, not just multiple expansion.
Since last Thursday digest:
In the dot-com boom, P/E ratios went to the moon while earnings barely budged. Today, earnings per share are more than doubled while multiples have remained relatively constant.
This is a structurally different setup – and arguably more durable.
Better yet, we can also look at a higher level of technology to the broader S&P…
Wells Fargo expects S&P 500 earnings growth to rise to 22% year over year during the second quarter.
Meanwhile, FactSet’s future earnings data shows similarly strong forecasts built into current estimates — meaning today’s high valuations are being met, at least in part, by real, growing earnings rather than pure multiple expansion.
Don’t get me wrong – this is the market no cheap. But these strong earnings take pressure off the “fair valuation” argument, which – coupled with a lack of FOMO – suggests disaster is not right at our doorstep.
Closing the Loop on Memory Trading and FOMO Yes, there are some cases of memory FOMO today – but they’re chasing a huge number that was just printed, not some fancy number people imagine He hopes will print.
Coming full circle
If you had to put on the cover of a magazine in today’s market, would it be the cheery “Shift into High Speed” issue? Or the desperate “Can he stay?” version?
For me, it’s neither one nor the other. It’s something less marketable – perhaps:
“Investors aren’t sure, and the data backs them up.”
Naturally, magazines with this cover do not sell well. But that’s usually a good sign for investors like you and me.
Most likely, we are somewhere in the messy middle, although skewed towards the upside. Evidence still supports parts of both bullish and bearish cases. This is important because true market tops usually leave little room for discussion.
Bottom line: Watch IPO data…track earnings…respect Grantham’s warnings…
But analyze if you are truly See the frenzy of FOMO today – and if you haven’t, consider what that means in terms of whether we’ve truly reached peak.
We will continue to track this as the data develops.
I wish you a good evening,
