Mr Grantham, who founded Boston-based hedge fund GMO, has been heavily criticized for calling a bubble in house prices in Australia, saying it was due to the country’s underlying optimism.
“If you want to challenge the housing market and suggest it’s in a bubble in the UK or the US, you have a decent conversation. If you do that in Australia, you’ll have World War III,” Mr Grantham quipped.
He said the main remedy for overvaluation is to see home prices rise three to six times in the U.S. relative to incomes. In London, he said it has happened 10 times since 1998.
“God knows what is in Australia. With 10 times the household income, how can the average person afford a new home?”
Mr Grantham added that inequality was the “poison of the capitalist system” as he warned of rising populism in Western democracies.
He cited a modest 10 percent rise in wages, after adjustments over the past five decades, and said dissatisfaction with the “rich and powerful” was the only issue on which most voters agreed.
“America needs to be saved from the rich and powerful. I can’t speak to Australia, but there is a shock about that too,” he added.
‘This head is fake’
Mr Grantham is no longer an active investor in the Boston hedge fund, but has commitments to a $US1.5 billion ($2.3 billion) endowment.
Hedge fund giants told delegates they do not believe a new bull market has begun in the US and that the AI-fueled rally in mega cap US tech stocks is making a needed correction.
“There has never been a bull market in history that started at such a high price,” he told reporters in Sydney.
“The end of these great bubbles is hard enough for thinking without the elements of new bubbles coming in, and that’s what happened.
“Dozens of giant American stocks have had a good run on the back of AI. The problem is that the prices are incredibly high. And basically the economy is starting to unravel.”
“So this head is fake, but this head is fake.”
Mr Grantham said if he owned US stocks, he would focus on quality – an investment factor he said was overlooked by academics as a sustainable source of returns.
“I would focus on non-US stocks, and if I had to buy US stocks like most people, I would focus on quality.”
Mr Grantham, who is a strong advocate of action on climate change, said he also favored stocks linked to the theme.
“They will have incredible top-line revenue growth driving Tesla or electric vehicles versus older VWs and older-style cars.
“The climate change world is finally waking up to governments around the world getting behind it and subsidizing it.”