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The Stock Market 'Melt Up' Chorus Grows

By Dr. Steve Sjuggerud
Monday, January 8, 2018

"Welcome to the Melt Up."
 
That was the title of a speech I gave to hundreds of our best customers at our Las Vegas conference back in 2015.
 
My story was simple. Stocks were about to go higher than most investors could possibly imagine.
 
That conference was more than two years ago. I've been writing about the "Melt Up" almost nonstop since then.
 
In recent weeks, many famous Wall Street experts have started calling for a Melt Up in stock prices... including one of the true greats...
 
"GMO's Jeremy Grantham Says Stocks Could Be Heading for a 'Melt-Up'," Bloomberg reported last week.
 
That story must have struck a nerve. Friends from all over the world e-mailed me to ask, "Did Jeremy Grantham steal your Melt Up thesis?"
 
I appreciate friends (and subscribers!) having my back – knowing that I was probably the first one regularly writing about the likelihood of a Melt Up in U.S. stocks.
 
And I'm flattered that people think Grantham "stole" my idea. But the reality is, when it comes to bubbles and melt ups, few people know more than he does.
 
If you want to learn more about today's Melt Up relative to previous stock market bubbles, I strongly urge you to read a paper Grantham put out last week...
 
In that paper, Grantham says he knows that prices are high – but high prices aren't what kill a bubble. He writes...
 
Indicators of extremes of euphoria seem much more important than price... Not nearly enough signs of euphoria [are] yet present to make this look like a late-stage bubble.

He then details several of his early warning indicators... which are similar to the early warning indicators I've written about (like the advance/decline line, a measure that shows if more stocks are going up than down).
 
Grantham makes the case that the stock market could reach bubble proportions later this year, or into the next...
 
He put specific numbers and dates on it (which is always dangerous to do!). He said:
 
A range of 9 to 18 months from today and a price rise to around 3,400 to 3,700 on the S&P 500 would show the same 60% gain over 21 months as the least of the other classic bubble events.

He concluded by saying, "A melt-up or end-phase of a bubble within the next 6 months to 2 years is likely." And if the Melt Up does arrive, he says the odds of a subsequent "Melt Down" are "very, very high."
 
I agree.
 
I expect that you will hear a lot of talk about bubbles in the next two years. Most of the folks talking will have no idea what they're talking about.
 
Jeremy Grantham, on the other hand, knows bubbles as well as anyone ever has.
 
If you want to learn more about today's Melt Up – and the potential subsequent bubble – I highly recommend reading his research paper on the subject called "Bracing Yourself for a Possible Near-Term Melt-Up." It's available as a free PDF download on his company's website, www.GMO.com. (Or, you can go straight to the article by clicking here.)
 
Thanks again to friends who came to my defense as a lot of new voices are talking about a possible Melt Up. Some of those experts may have borrowed my work. But I doubt Grantham did... On the contrary, I've learned more from him about bubbles than just about anyone.
 
You should learn about bubbles from him, too...
 
Good investing,
 
Steve




Further Reading:

"You have to keep an eye on the health of the market," Steve writes. In this essay, he explains the advance/decline line – and why it's an early warning signal for market peaks. Learn more here: The 'Melt Up' Isn't Close to Over Yet – Here's Why.
 
Steve recently shared a huge change to his Melt Up thesis. "The stock market peak won't arrive until 2019 or even 2020," he says... For all the details about this new prediction, check out his recent essays here and here.

Market Notes


NEW HIGHS OF NOTE LAST WEEK
 
Berkshire Hathaway (BRK-B)... Warren Buffett's holding company
Bank of America (BAC)... America's "financial backbone"
JPMorgan Chase (JPM)... America's "financial backbone"
American Express (AXP)... credit cards
Mastercard (MA)... credit cards
Ally Financial (ALLY)... online bank
E-Trade Financial (ETFC)... online brokerage
Alphabet (GOOGL)... "FANG" stock
Facebook (FB)... "FANG" stock
Amazon (AMZN)... "FANG" stock
Netflix (NFLX)... "FANG" stock
Microsoft (MSFT)... "digital utility"
Royal Dutch Shell (RDS-A)... oil and gas
BP (BP)... oil and gas
Rio Tinto (RIO)... diversified mining
Alcoa (AA)... aluminum
Southern Copper (SCCO)... copper
Steel Dynamics (STLD)... steel
KB Home (KBH)... homebuilder
Lennar (LEN)... homebuilder
Sherwin-Williams (SHW)... paint and coating
International Paper (IP)... paper
FedEx (FDX)... shipping
United Parcel Service (UPS)... shipping
Waste Management (WM)... trash and recycling
LyondellBasell Industries (LYB)... chemicals
AbbVie (ABBV)... prescription drugs
Abbott Laboratories (ABT)... "one of the world's greatest tailwinds"

NEW LOWS OF NOTE LAST WEEK
 
Sears Holdings (SHLD)... dying retailer
Barnes & Noble (BKS)... bookstores
American Outdoor Brands (AOBC)... guns

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The 'bubble king' weighs in on this cryptocurrency...
 
Jeremy Grantham is the bubble king. Today, he believes we are witnessing the largest bubble in history...
 

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