‘Super bubble’: Jeremy Grantham says historic crash has begun

Article content

This article was created by MoneyWise. Postmedia and MoneyWise may earn an affiliate commission through links on this page.

Article content

Legendary investor Jeremy Grantham, who’s known for calling out market bubbles, said the historic crash he’s been predicting is finally underway. He also added that it would be difficult for the Fed to prevent a market collapse of roughly 40 per cent from current levels.

“This checklist for a super bubble running through its phases is now complete and the wild rumpus can begin at any time,” Grantham writes in a Thursday note. “When pessimism returns to markets, we face the largest potential markdown of perceived wealth in US history.”

Grantham predicted the dot-com collapse and the 2008 meltdown of the real estate market — he’s also in charge of about US$60 billion as the investment chief at asset management firm Grantham, Mayo, & Otterloo — so he’s worth listening to.

Article content

Before Grantham’s predictions have a chance to come true, let’s look at a few safe haven stocks in GMO’s portfolio. One of them might be worth buying with some of your extra cash .

United Health (UNH)

UnitedHealth’s quarterly dividend payout, currently US$1.45 per share, and the performance of its stock, which is roughly 33 per cent over the past year, suggest that the company is currently in strong financial shape.

But the insurance and healthcare leader is well-positioned to weather any long-term financial tumult as well.

Regardless of what happens to the economy, Americans will still need health care. Millions of them are already UnitedHealth customers.

UnitedHealth is a diversified company. In addition to its thriving insurance business, it also provides software and information technology to a number of clinics and hospitals.

Article content

As the medical tech space continues to grow, so should UnitedHealth’s profits.

US Bancorp (USB)

US Bancorp is the parent company of US Bank, one of the US’s largest banking institutions.

Betting on bank stock might seem counterintuitive when a stock market correction is expected to hammer investors’ finances, but banks tend to do well in rising interest rate environments: As rates increase, the profit margin, or spread, earned by banks widens.

Rather than turning itself into a casino through the kinds of risky derivative plays that tanked some of its competitors in 2007-2008, US Bancorp has instead been focused on innovating and providing digital service for its customers.

The increased efficiency and lower operating costs that result should be music to investors’ ears.

Article content

Over the past year, US Bancorp shares have risen by about 20 per cent.

Coca-Cola (KO)

Despite the push for more healthy food and beverage consumption, Coca-Cola’s dominance of the soft drink market remains unmatched.

But the company’s offerings extend far beyond liquid sugar. Coke also sells popular bottled water brands Dasani and Smartwater, big-name juices like Minute Maid and Simply, and international coffee products Costa and Georgia.

What makes Coca-Cola an interesting defensive play is the company’s consistently impressive profit margin, which has averaged 23.6 per cent over the last decade. That’s largely the result of Coke’s ability to tinker with portion sizes and prices and having the capital to invest in greater productivity.

Article content

A faltering stock market shouldn’t change any of those dynamics.

In 2021, Coke’s quarterly dividend payout hit US$0.42, almost double what it was a decade ago. The company’s stock is up roughly 25 per cent over the past year.

Don’t forget inflation

Grantham says portfolios also need protection from inflation, which hit a 40-year high in the US, and a three-decade high in Canada, in December.

“This is the first time that inflation, the number one predictor of a market downturn since 1925, is being ignored,” he said.

At times of high inflation, investors often turn to real assets, which tend to hold their value. That’s why collectibles — diamonds, wine and fine art — are taking up an increasing amount of room in modern portfolios.

This article was created by Wise Publishing. Wise is devoted to providing information that helps readers navigate the complex landscape of personal finance. Wise only partners with brands it trusts and believes may be helpful to the reader. This article provides information only and should not be Constructed as advice. It is provided without warranty of any kind.