The “Eternal Bear” hasn’t ruled out a 70% stock market crash. What advice does he have for investors?

Jeremy Grantham, one of Wall Street’s most respected veteran investors—known as the “eternal bear” for his caution—has called the artificial intelligence market the biggest bubble in U.S. history. Shares of artificial intelligence companies could fall by 70%, he said on Steven Bartlett’s podcast, “The Diary of a CEO.”

Grantham argues that the current hype surrounding artificial intelligence is fundamentally different from past market bubbles—such as the railway boom of the 19th century or the dot-com crash of the early 2000s.

“Signs of wild euphoria—such as the situation surrounding SpaceX—are visible everywhere. The company estimates its potential addressable market at a quarter of global GDP. This is simply a mind-boggling fantasy: all this talk of mining asteroids and the incredible success of AI. We’re looking at a classic picture of a market peak. This is exactly what happens at the very top of a massive bubble,” Grantham said on a podcast (as reported by Seeking Alpha).

According to the investor’s expectations, companies will begin laying off employees, and people will feel less secure. “Those who feel poorer will spend a little less, so the economy will generally come under some pressure. If you look at the collapse of major bubbles in the past, you can see that they were always followed by truly difficult times,” Grantham added.

Grantham advises investors to allocate their savings to stocks of companies outside the U.S., particularly in emerging markets, and to include bonds, precious metals, and real estate in their portfolios.

“Rule number one is diversification. Allocate 60% of your money to a broad-market stock index outside the U.S. These are much cheaper and have significantly outperformed the U.S. market in terms of returns since the beginning of last year. Invest another 5–10% in precious metals, such as gold and silver. If it’s convenient and makes sense, hold a small amount of real estate, even though it’s incredibly expensive by historical standards. “I would put the rest into bonds,” he said.

Although Grantham’s track record includes predictions of famous market crashes—in Japan in 1989, as well as in the U.S. in 2000 and 2007— this “perennial bear” has been forecasting epic crashes for most of the past decade, notes Seeking Alpha. Grantham has been publishing articles about an “epic crash” on Seeking Alpha almost every year since 2021, the publication notes.

In May, Grantham stated that the U.S. could have slipped into a recession as early as 2023, and the stock market could have fallen by 25%, had it not been for the boom in capital spending on artificial intelligence. The emergence of ChatGPT and the sharp rise in AI investment have halted the negative scenario that began to unfold in 2022. However, the expert sees no cause for optimism in this: he is convinced that the hype surrounding new technologies has merely reinvigorated a market bubble that had previously deflated only halfway.

This article was AI-translated and verified by a human editor