What's up guys and welcome back to wall street millennial on this channel, we go for everything related to soccer. Investing today we're continuing our coverage of the market crash, which has gripped tech stocks since the beginning of this year and trying to figure out how much downside could still be left when you're having trouble making sense of the market. It can sometimes be useful to listen to market veterans who have been in the business for decades. One of the most well respected such investors as jeremy grantham, the co-founder and chief investment strategist of gmo, an investment firm with over 100 billion dollars of assets under management.

Grantham is 83 years old and has made a name for himself by correctly predicting numerous market bubbles. He predicted the japanese real estate and stock market bubble of 1989, the dot-com bubble of 2000 and the real estate bubble in 2008, which led to the global financial crisis. While each of these bubbles were obvious in hindsight, grantham was one of the few investors who saw them coming beforehand and avoided catastrophic losses. In his view, we are currently at the peak of a super bubble, which is just now starting to burst.

The trend line being slightly generous is 2500 and most of the great bubbles, the super bubbles go below trend and stay there for quite a while in the greenspan era that tendency stopped in 2000. Yes, the nasdaq came down 82 percent, which was fairly brutal. Amazon came down 92, but the federal reserve raced to the rescue so loudly and strongly that they stopped the decline in the s p. A trend line it only declined.

50 percent 50 is a hell of a big decline, but it was only enough to get it back then to trent this time. Trend is at most 2500 and i would expect even if the federal reserve tries to do the same, it will be hard to prevent the market from declining to that level. Currently, the s p 500 index is at 4. 356.

grantham thinks that it will crash down to 2500, which implies a further 43 downside, and he thinks that technology stocks will do even worse. Going down to 2500 would wipe out three years of gains and take us back to levels not seen since the beginning of 2019.. This is quite a draconian view of the markets, but it's important to note that this is not a complete consensus. Arc invests kathy wood says the disruptive technology stocks are in deep value territory and now is a golden buying opportunity.

Jeremy, grantham and kathy wood are predicting the exact opposite scenarios for the market. Obviously, they can't both be right in this video we'll take a deep dive into their competing predictions to see which of them makes more sense. Quick pause from our sponsors over at masterworks.io, given the high uncertainty around the stock market and inflationary fears. Now, more than ever, it's important to diversify into alternative asset classes.

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Today and now back to the video. A few days ago, jeremy grantham published a long and detailed report explaining why the stock market is currently in a super bubble. I put a link in the description below and i recommend you read the whole thing. If you have time, grantham thinks that today's stock market looked extremely similar to three previous super bubbles.

Over the past century, the market crashed during the great depression and the japanese stock market bubble of 1989.. For all three of these bubbles, the rate of price increase accelerated in the last couple years before the crash. If you draw a linear trend line through each of the charts, you can see that they went well above the trend in the last couple years. As the bubble inflates, people get more and more excited pushing the prices up even further, but eventually the valuations become absurd and it reaches a breaking point in grantham's view.

Another common characteristic of bubbles is that they don't pop evenly the bubble stocks that led the market on the way up are most overvalued and are thus the first to collapse. This can be seen clearly with kathy wood's arc innovation etf at the start of the pandemic. Her disruptive technology stocks massively outperformed the s, p 500. They peaked in february of 2021, almost one year ago, since then they've been massive underperformers and have given back almost all of their gains.

A lot of these companies are losing money and have extremely high price to sales valuations. When a company has no earnings, it has no valuation to support. So they are the first stocks investors dump when they get scared. The mega cap tech companies like apple and google, are highly profitable, so investors are more comfortable holding on to them.

These blue chip stocks will be the last man standing, but grantham thinks that even these stocks will eventually crash and bring the market indices down with them. Another telltale sign of a market bubble is crazy: investor behavior, which is a little bit more difficult to quantify in recent years. Trading apps, like robinhood, have gamified the stock market and brought in tens of millions of new investors for investors who first started buying stocks at the pandemic. Lows they've, never experienced a bear market and think that stocks only go up.

Things have gotten even crazier, with the rise of cryptocurrencies dogecoin was started as a joke, but achieved a market cap of almost 90 billion dollars at the peak and melania trump is selling nfts for hundreds of thousands of dollars. Each grantham developed a model to predict the fair price and earnings ratio for the s p 500. He uses three variables as inputs. The average return on equity of companies, volatility and inflation in volatility and gdp growth.

A higher return on equity should increase p e ratios because it means companies are more profitable and it should be easier for them to grow their earnings. Higher volatility in inflation or gdp should decrease p e ratios as investors, hate uncertainty and thus demand a higher risk premium. In grantham's view, the fed created the current bubble by printing trillions of new dollars. All this new money is causing inflation to rise, which will ultimately bring the downfall of the bubble.

Importantly, high in volatile inflation is a major crux for grantham's market crash predictions, and this brings us to the other side of the debate where we have arkan best founder kathy wood. She thinks that inflation fears are overblown and disruptive technology. Stocks are now in deep value territory. A few weeks ago, she published an article explaining why this is the case.

I also put a link to this in the description below, while her stocks have been hit the hardest in the recent market crash. She thinks this also sets them up to massively outperform when the market rebounds, she made a table showing the performance of some of her top holdings, zoom, docusign and teledoc. These stocks were down between 50 and 70 from their all-time highs. In fact, they're down.

Even more now, but she points out that in the same time period their revenues have increased dramatically, despite tough year-over-year comparisons, while these stocks may have been overvalued at the peak they're at least less overvalued. Today she says the stock market has become dominated by quantitative hedge funds, who use algorithms to buy and short stocks on a minutely basis. These quants make up seventy percent of market volumes whenever inflation or interest rates increase. These algorithms are trained to automatically start shorting companies that are losing money or have high price to sales multiples.

The quants have no idea what are the future growth prospects of these companies or what disruptive technologies they have developed. The talking heads in the financial media cover the negative momentum non-stop, as market crashes always make for good headlines. This adds to the arrow of fear and brings even more selling pressure. Wood thinks that the narrative around inflation has gotten way ahead of itself as artificial intelligence and other technological innovations advance.

The real cost of reducing goods and services will decrease. This will offset at least some of the new money that the fed has printed during the pandemic. The savings rate increased dramatically driven by stimulus, money and people being unable to go outside to spend their cash. This has built up huge pent-up demand, causing consumer spending to skyrocket once the economy reopened.

At the same time, covet-related supply chain issues reduced supply for many goods, causing prices to rise, as these transitory issues work their way out of the economy, inflation will moderate throughout 2022 and the fed won't be forced to raise rates as much as feared. This will allow the entire stock market, and especially the disruptive innovation stocks, to rebound both jeremy grantham and kathy wood, make good points if you read either of their reports individually, you'd probably walk away, agreeing with them, but they come to the exact opposite conclusions. That's why trying to predict market crashes and bottoms is so difficult. Jack bogle invented the index fund.

He says that one of the main reasons most professional investors underperformed the indices is because they try and fail to time market corrections at the end of the day. Nobody knows for sure where the market will be one two or even six months from now, but as long as the american economy continues to chug, along as it has for the past 200 years, the stock market will almost certainly be higher three to five years from Today, with that being said, the valuation gap between growth and value stocks is near record highs to the extent that we're in a stock market bubble it's likely to be in the growth stocks, not the value stocks. The s p 500 value index has a forward price earnings ratio of 17 times, which is only slightly higher than historical averages. If you think tech stocks are in a bubble, it's probably better to rotate to value stocks instead of converting to cash.

This way you can avoid any potential bubble and technology stocks, while at the same time continuing to participate in the normal gains of the stock market. Alright guys that wraps it up for this video. What do you think about the current market crash? Who is right? Jeremy, grantham or kathy wood, or is the reality somewhere in between. Let us know in the comment section below as always.

Thank you so much for watching and we'll see in the next one wall, street millennial signing out.