James Montier: This Is A “Greater Fool Bubble” And I’m Getting Out
by Tyler Durden
Last August, we were delighted to point out the latest quirk of this incredibly manipulated and centrally-planned “market”: in “Record Number Of Fund Managers Say “Stocks Are Overvalued” As They Rush To Buy Nasdaq”, we noted a paradox whereby on one hand a record number, or 46%, of Wall Street fund manager respondents to the BofA monthly survey said stocks are “overvalued”…
Today, half a year later, the same paradoxical observation forms the basis for the latest note by Jeremy Grantham’s colleague, GMO’s James Montier, titled “The advent of a cynical bubble”, in which he uses the exact same survey and makes the exact same observations to reach our conclusion:
A recent Bank of America ML survey showed the highest level of those citing “excessive valuation” ever. Yet despite this, the same survey showed fund managers to still be overweight in equities.
To Montier this combination was not paradoxical per se,as much as exposing a the existence of that strangest of creatures: “the fully-invested bear.”
The most common rationale for such a cognitively dissonant stance is “the fear of missing out on the upside”(aka FOMO – fear of missing out). As I think Seth Klarman pointed out long ago, this isn’t really fear at all, but rather greed.
How does one explain the existence of this particular “greedy bear”? To Montier the cognitive dissonance noted above is a function of the Fed-reflated bubble the US finds itself in: the near rational – or cynical – bubble, also known as the greater fool bubble. Here’s Montier:
I am not a great fan of this nomenclature as it suggests a veneer of respectability that I find undeserved. To me these are really better described as greater fool markets. They are cynical bubbles in that those buying the asset in question don’t really believe they are buying at fair price (or intrinsic value), but rather are buying because they want to sell to someone else at an even higher price before the bubble bursts. Chuck Prince, the former CEO of Citibank, aptly demonstrated the typical cynical bubble mentality when in July of 2007 he uttered those fateful words, “As long as the music is playing, you’ve got to get up and dance. We are still dancing.”
Source: James Montier: This Is A “Greater Fool Bubble” And I’m Getting Out