No one can deny Elon Musk is a visionary. But has he finally gone too far? Musk changed the world with Paypal, Tesla, and SpaceX. Not to mention he's the world's richest person. But he's raising quite a few eyebrows these days. He recently introduced his new, humanoid Optimus robots. They'll soon be building Teslas… But that's not all they'll do. Musk also mentioned these AI-brained robots… Could serve as “romantic companions” for lonely people. (Except the words he used were more explicit.) Is this the future of AI? No one should bet against Musk. See the shocking future of AI here.
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Stocks are absurdly expensive and likely to struggle, artificial intelligence is a bubble destined to burst, and the economy will suffer a minor recession or worse, Jeremy Grantham has warned.
The cofounder and long-term strategist of fund manager GMO recommended avoiding US stocks in a recent ThinkAdvisor interview. “They're almost ridiculously higher priced than the rest of the world,” he said.
“The stock market will have a tough year,” he continued. American companies' profit margins are at historic highs relative to foreign rivals, creating a “double jeopardy” situation for stocks where both earnings and multiples could fall, he added.
Grantham, a market historian who rang the alarm on a multi-asset “superbubble” at the start of 2022, said it burst that year when the S&P 500 tumbled 19% and the tech-heavy Nasdaq Composite plunged 33%.
Stocks would have slumped another 20% or 30%, he said, but the sell-off was “rudely interrupted” by the AI frenzy in early 2023 that “changed the flight path of the entire stock market.”
The veteran investor said that “AI isn't a hoax, as bitcoin basically is,” but predicted the “incredible euphoria” around it wouldn't last. Still, he suggested it could prove to be as revolutionary as the internet over the next few decades.
Grantham also issued a grim forecast for the US economy, despite solid GDP growth of 3.3% in the fourth quarter, unemployment and annualized inflation below 4% in December, and the prospect of several cuts to interest rates this year. On the other hand, the inverted yield curve and prolonged declines in leading economic indicators point to trouble ahead.
“The economy will get weaker,” he said. “We'll have, at least, a mild recession.”
Grantham also flagged the threat posed by conflicts in Ukraine and the Middle East, warning that wars can foster a geopolitical backdrop that's “scary as hell and in which bad things can happen.” The backdrop is especially worrying when assets are at record highs, he added.
“What I specialize in other than bubbles are long-term, underrated negatives,” Grantham said. “And my God, there's a rich collection of negatives right now.”
The bubble guru urged investors to be careful, and recommended they seek out undervalued assets in emerging markets like Japan, depressed sectors like natural resources, and growth areas like climate-change solutions.
It's worth emphasizing that Grantham's dire forecasts haven't hit the mark in recent years. For example, he suggested in April that the S&P 500 could be cut in half to around 2,000 points in a worse-case scenario, but the benchmark stock index has surged to an all-time high of over 4,900 points since then.
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