Two big names have come out in the last week have come out saying that the market is overvalued again. Both Bill Gross of PIMCO and Jeremy Grantham have published newsletters last week and both make a claim for overvaluations in both the stock market and other assets.
Grantham states fair value for the S&P is at 860 and goes on to explain how the people at the Fed and in the administrations not only didn’t know what was going on in 2008, but they are creating another asset bubble now with all of the liquidity they have pumped into the system. He reminds us that:
“After a very large decline in the fall of 1929, the S&P 500 rallied 46% from its low in November to the rally high of April 12, 1930. It then, of course, fell by over 80%.”
Mr. Grantham expects the market to fall to below his fair value target next year, but not past the lows we have already seen. He also sees poor growth over the next seven years for the US as a whole, but believes quality stocks will outperform the US market.
Our other offender Mr. Gross came out this week with his monthly update and has the same opinion as Mr. Grantham. Mr. Gross states:
“almost all assets appear to be overvalued on a long-term basis”.
In his view if stocks revert to the rate where stock values match nominal GDP growth a fair value is Dow 7,000.
Both articles are very informative and worth reading. Given Friday’s sell off they may be right on the mark as well.
