Hussman Questions Grantham's "Melt-Up" Thesis

Value investor Jeremy Grantham suggests "Bracing Yourself for a Possible Near-Term Melt-Up".

Grantham's 13-page synopsis Bracing Yourself for a Possible Near-Term Melt-Up suggests the bubble will burst and the consequences devastating, just not yet.

His key reasons center around an expected 3.5 year window that is typical of other bubbles coupled with advance decline ratios and acceleration that have not yet turned.


Classic Bubble


S&P 1997-2001

​Summary Grantham Guesses ("Absolutely Personal Views")

  • A melt-up or end-phase of a bubble within the next 6 months to 2 years is likely, i.e., over 50%.
  • If there is a melt-up, then the odds of a subsequent bubble break or melt-down are very, very high, i.e., over 90%.
  • If there is a market decline following a melt-up, it is quite likely to be a decline of some 50%.
  • If such a decline takes place, I believe the market is very likely (over 2:1) to bounce back up way over the pre 1998 level of 15x, but likely a bit below the average trend of the last 20 years, as the trend slowly works its way back toward the old normal on my “Not with a Bang but a Whimper” flight path.

"If if the bubble ends in the way I expect it will, then the structural stress may well help the decline become, in technical terms, a real humdinger.​"

​According to Grantham "The advance-decline line is clearly not delivering a threatening message yet."

Advance-decline refers to the number of shares increasing in price minus the number of shares declining in price.

Hussman's Take

Note that we are "only" into month 22 whereas Grantham expects 36-42.

Hussman is correct that acceleration is readily apparent.

Replies to Hussman

Blow-Off Top

Have we met the sufficient conditions or is another year of investor euphoria coming?

People are still making excuses "the market is cheap".

But it has to be that way for bubbles to form.

Mike "Mish" Shedlock

No. 1-25

Jeremy Grantham, who is credited with calling the 2000 and 2008 downturns has only added to market enthusiasm by informing us last Wednesday to be prepared for the possibility of a near-term “melt-up” but that is only part of the story. The negative part contained in Grantham's note that many seemed to discount were his feeling that this is one of the highest-priced markets in U.S. history and "this would likely set the stage for a burst bubble and a stock-market meltdown in the future." more below.

Mike Mish Shedlock
Mike Mish Shedlock


"Mish, I currently am in gold/silver and miners. I've stayed out of stocks (much to my dismay), would this be time to buy index funds with trailing stops (10%?), or stay away?" Hi John H:
My track record is such that even I would not ask me. But no, I am not buying indices here and I would advise against it. Like Hussman, I have not timed this remotely accurately.


You can make a lot of money off a bubble if you can time it right. Sell at the top, then buy at the bottom when there's blood in the streets.


Mish, I currently am in gold/silver and miners. I've stayed out of stocks (much to my dismay), would this be time to buy index funds with trailing stops (10%?), or stay away?


Repeat after me, there is no speculative bubble, this market action is almost entirely rationally determined by the excessive global monetary bubble. When capital flows switch then something will happen. The US is a third world hot money destination, soon to be a third world energy exporting nation. If you are speculating in this market you are in bad company you won't recognize the turn. Forget sentiment, a river of money is running over the banks, and it recedes the same way.