Has US doomsayer Jeremy Grantham changed his mind on the Australian housing bubble?

IT wasn’t that long ago that Jeremy Grantham from US investment fund GMO predicted the Australian property market was a bubble waiting to burst.

But if you read in between the lines of his latest newsletter, he seems to be changing his mind.

Back in late 2010 Grantham insisted that Australians were spending too much on housing, with property prices overvalued by 42% in his estimate.

He said that in our major capital cities, such as Melbourne and Sydney, house prices have doubled in eight years and quadrupled in 21 years.

According to Grantham, this type of rapid rise in values was creating a price bubble that was set to deflate significantly in the near future.

Of course his predictions didn’t come to pass and there are signs that our property markets are turning the corner.

In a recent newsletter Grantham offered 10 investment tips and urged investors to contain their natural optimism.

“Our species is optimistic, and successful people are probably more optimistic than average.

“Some societies are also more optimistic than others: the U.S. and Australia are my two picks.

“I’m sure (but I’m glad I don’t have to prove it) that it has a lot to do with their economic success.

“The U.S. in particular encourages risk-taking: failed entrepreneurs are valued, not shunned,” he writes.

“While 800 internet start-ups in the US rather than Germany’s more modest 80 are likely to lose a lot more money, a few of those 800 turn out to be today’s Amazons and Facebooks.

“You don’t have to be better; the laws of averages will look after it for you.

“But optimism comes with a downside, especially for investors: optimists don’t like to hear bad news,” he adds.

“And in a real stock bubble like that of 2000, bearish news in the US will be greeted like news of the bubonic plague; bearish professionals will be fired just to avoid the dissonance of hearing the bear case, and this is an example where the better the case is made, the more unpleasantness it will elicit.

“Here again it is easier for an individual to stay cool than it is for a professional who is surrounded by hot news all day long (and sometimes irate clients, too). Not easy, but easier.”

His top 10 investment advice slogans are:

1. Believe in history

2. Neither a lender nor a borrower be

3. Don’t put all of your treasure in one boat

4. Be patient and focus on the long term

5. Recognize your advantages over the professionals

6. Try to contain natural optimism

7. But on rare occasions, try hard to be brave

8. Resist the crowd: cherish numbers only

9. In the end it’s quite simple. Really

10. This above all: to thine own self be true

Source: Property Observer


Subscribe & don’t miss a single episode of michael yardney’s podcast

Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.

Need help listening to michael yardney’s podcast from your phone or tablet?

We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.


Prefer to subscribe via email?

Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.

Avatar for Property Update


Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au

'Has US doomsayer Jeremy Grantham changed his mind on the Australian housing bubble?' have 1 comment

  1. Avatar for Property Update

    March 21, 2012 Ted Smith

    Michael, as a great philosopher once said, “do not try to read between the lines that are not written in stone”. More then once, I’ve seen investors make grave mistakes by simulating natural instincts rather than paying attention to the underlying message. True, there is time, but for how long? Many don’t realise that the great mathematician Pythagoras (who is also responsible for modern day music theory) modelled house prices some 2000 years ago. His research has been since recovered to show that property may well increase in value over the next 20 years – however it may also decrease, either rapidly or gradually.
    Just some food for thought that I thought I would share.


Would you like to share your thoughts?

Your email address will not be published.


Michael's Daily Insights

Join Michael Yardney's inner circle of daily subscribers.

NOTE: this daily service is a different subscription to our weekly newsletter so...