Legendary investor warns: This is the most fragile market in history

Renowned global financial market "bubble hunter" Jeremy Grantham warns that the AI-driven boom in the US stock market, based on past fervent performance, will end in disaster, and an economic recession seems inevitable.

The long-term investment strategist at GMO stated, "This is the most fragile market in history."

Grantham emphasized that after periods of sharp increases in stock price-earnings ratios, there is always a painful period of decline. He cited research by seasoned investor John Hussman, pointing out that the S&P 500 index has surged to its most aggressive valuation levels since 1929 this year.

Grantham expressed concern before the recent decline in the US stock market this month, stating, "This should make you worried and cautious, although the market does not feel worried or cautious."

The seasoned investor noted that a "huge" crash occurred in the US stock market just days after reaching its peak in 1929, leading to a global economic collapse and the onset of the Great Depression, plunging everything into turmoil immediately.

He also highlighted severe recessions following the burst of the Japanese asset bubble in the late 1980s, the dot-com bubble in the early 2000s, and the mid-2000s real estate bubble.

The release of ChatGPT at the end of 2022 ignited investors' interest in artificial intelligence, leading to surging prices of large tech stocks like NVIDIA and Microsoft, setting historic highs earlier this year.

However, Grantham stated that historical innovations from railroads to the internet have all experienced "brilliant bubbles" in their early stages, which eventually burst, and the situation with artificial intelligence is likely to be the same.

Grantham also reiterated his long-term forecast for an economic recession, emphasizing that economic recessions usually last much longer than experts predict. He stressed that the rise in the US unemployment rate in July to a level that "historically always signals an economic recession."

He said, "As a historian, I bet the economy will always experience a recession in such a situation. Maybe this time is an exception, but I won't hold my breath waiting."

Over the years, Grantham has been warning of the risks of market crashes and economic recessions, but his predictions have not materialized. For example, he warned last October that if a few bad things happened, the S&P 500 index could plummet to 2000 points - a 62% drop from the current level. Although the index has recently declined, it has still risen by 12% year-to-date.

The "bubble master" admitted that his severe warnings were "obviously premature." He said, "That's normal for me," and added that his early warnings during the internet and Japanese bubble periods were even more painful