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If you hold shares, you will lose money. Here’s Jeremy Grantham’s take. He’s the best. Watch out for sloppy Mercedes.

Jeremy Grantham has a reputation for being super smart and super prescient.  He has always been right on major market calls, albeit usually early – Japan, Tech Bubble, real estate bubble in 2008, reinvesting in March 2009, and now on everything. In late August, he published “Entering the Superbubble’s Final Act.

Here’s his Executive Summary:

Only a few market events in an investor’s career really matter, and among the most
important of all are superbubbles.1 These superbubbles are events unlike any others: while
there are only a few in history for investors to study, they have clear features in common.
One of those features is the bear market rally after the initial derating stage of the
decline but before the economy has clearly begun to deteriorate, as it always has when
superbubbles burst. This in all three previous cases recovered over half the market’s
initial losses, luring unwary investors back just in time for the market to turn down
again, only more viciously, and the economy to weaken. This summer’s rally has so far
perfectly fit the pattern.

The U.S. stock market remains very expensive and an increase in inflation like the
one this year has always hurt multiples, although more slowly than normal this
time. But now the fundamentals have also started to deteriorate enormously and
surprisingly: between COVID in China, war in Europe, food and energy crises, record
fiscal tightening, and more, the outlook is far grimmer than could have been foreseen
in January. Longer term, a broad and permanent food and resource shortage is
threatening, all made worse by accelerating climate damage.

The current superbubble features an unprecedentedly dangerous mix of cross-asset
overvaluation (with bonds, housing, and stocks all critically overpriced and now rapidly
losing momentum), commodity shock, and Fed hawkishness. Each cycle is different and
unique – but every historical parallel suggests that the worst is yet to come.

He continues:

The Times that Really Matter for Investors

Most of the time (85% or thereabouts) markets behave quite normally. In these periods,
investors (managers, clients, and individuals) are happy enough, but alas these periods
do not truly matter. It is only the other 15% of the time that matters, when investors get
carried away and become irrational. Mostly (about 12% of the time2), this irrationality
is excessive optimism, when you see meme stock squeezes and IPO frenzies, such as
in the last 2 years; and just now and then (about 3% of the time), investors panic and
sell regardless of value, as they did at 666 on the S&P in 2009 and with many stocks
trading at a 2.5 P/E in 1974. These times of euphoria and panic are the most important
for portfolios and the most dangerous for careers. (Keynes’ famous Chapter 12 would
suggest that when confronted with a bubble, running off the cliff with company is the
safest strategy for managers, whose business imperative, after all, is to be a permabull,
where the real money can be made. This is a strategy adopted reasonably enough by
almost everyone.3) …

We’ve been in such a period, a true superbubble, for a little while now. And the first
thing to remember here is that these superbubbles, as well as ordinary 2 sigma bubbles,
have always – in developed equity markets – broken back to trend. The higher they go,
therefore, the further they have to fall.

The Stages of a Superbubble

My theory is that the breaking of these superbubbles takes multiple stages. First, the
bubble forms; second, a setback occurs, as it just did in the first half of this year, when
some wrinkle in the economic or political environment causes investors to realize
that perfection will, after all, not last forever, and valuations take a half-step back.
Then there is what we have just seen – the bear market rally. Fourth and finally,
fundamentals deteriorate and the market declines to a low.

Let’s return to where we are in this process today. Bear market rallies in superbubbles
are easier and faster than any other rallies. Investors surmise, this stock sold for $100
6 months ago, so now at $50, or $60, or $70, it must be cheap. Outside of the late stage
of a superbubble, new highs are slow and nervous as investors realize that no one has
ever bought this stock at this price before: so it is four steps forward, three steps back,
gingerly exploring terra incognita. Bear market rallies are the opposite: it sold at $100
before, maybe it could sell at $100 again.

For Grantham’s full brilliant report, click here.

Apple is falling

The analysts are downgrading it because of aching consumer demand. I’m beginning to think the analysts re right.

Every night I crawl into bed with a laptop and read the reviews on my Apple products — the watch, the iPhone 14 pro max, and the new Airpods pro. I can’t get excited.

I love my watch series 7, my iPhone 13 pro max and my many generations of Airpods.

I have decided to skip buying anything Apple for now. Maybe others have, too? Look at Apple’s stock over the last month (I’m short it.)

Check. Check. Check.

God bless Mercedes. This is what the instruction book for my wife’s car says:

This is what the fuel filler flap says:

The real pressure is on the inside of the driver’s door:

For four years we drove around with 34 in all four tires, just as Mercedes told us.

We replaced all tires several times — until some nice mechanic said we should be inflating to 42 in the front and 48 in the back, as it said on the inside of the driver’s door.

Can you believe that Mercedes would be so egregiously negligent?

Check. Check. Check.

Be wary of Windows 11

Microsoft is now trying to sneak Windows 11 onto people like you and me happily running Windows 10.

It’s pushing Windows 11 as an “upgrade.” It’s not.

Be wary of what you let Microsoft “upgrade.”

Great cartoons

The military man who rules Myanmar

It’s amazing he can stand with all those medals.

He’s another case of Power corrupts. Absolute power corrupts absolutely. 

He hasn’t killed as many people as Putin, but he’s right up there.

Don’t be fooled by today’s uptick in the market.

See you this weekend. — Harry Newton