Jeremy Grantham is a highly knowledgeable investor who started one of the world’s first index funds in the early 1970s. He is Chairman of the Board of Grantham Mayo Van Otterloo, a Boston based asset management firm that manages more than US $107 billion. He has built much of his investing reputation over his long career by correctly identifying speculative market “bubbles” as they were happening and steering clients’ assets clear of impending crashes. Grantham avoided investing in Japanese equities and real estate in the late eighties, as well as technology stocks during the internet bubble in the late nineties. [Above extracted from Wikipedia].
This excerpted from a Financial Times interview 19 Apr 2010 -
“Bubbles are important for the country because there is nothing more dangerous and damaging to an economy than a great asset bubble that breaks. … We looked back as far as we could, [of the 34 bubbles we found over the years], 32 have moved all the way back down to the trend line that existed prior to the bubble forming. There were no exceptions. The two that are outstanding, the UK and Australian housing bubbles, form a unique and interesting subset caused by, I believe, floating rate mortgages. The mortgages came down so fast that they protected the bubble, and now we have to see what happens when interest rates rise. But if they do not, in both cases, go back to the old trend line multiple of family income, which is what should drive house prices, it will be the first time in history that such a bubble has not broken. This is not something that I would want to bet on if I was thinking of buying a house right now.”
[BTW: Canadian housing is in precisely the same boat as that of the UK and Australia. Vancouver's '[price] multiple of family income’ is higher than any city in either of those countries. -vreaa]