S&P 500 down to 3000?

As I said, this is a very confusing market at the moment with a lot of unknowns. So here is one very bearish view from a well-known investor Jeremy Grantham. Do I believe we will see another 25% decline for S&P 500? Per its TA, I don't believe so. We may see another 10% or so decline, especially if the market shoots up near its previous peak, then another leg down could be very painful if anyone chases it. But down to 3000? Certainly possible but I'm not convinced yet! In any case, using my special strategy to trade with a high risk/reward ratio with a wide error margin is good for me to trade in this scary market with a lot of unknowns! 

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"It's likely that there will be considerably more pain before this is finished," says legendary British investor Jeremy Grantham per the stock market this year. 

We've been keeping tabs on Grantham's periodic media appearances for several years now, seeing as he's one of the few people who's accurately "called the top" of one bull market after another.

He bailed from Japanese stocks just as they were crashing in 1990. He anticipated the dot-com meltdown in 2000. He was among the lonesome voices — along with our own firm — who said the mid-2000s housing bubble would come to a disastrous end.

And today, Mr. Grantham is pushing against the bear-market-is-over narrative. 

Rather, he pegs fair market value for the S&P 500 "pretty close to 3,000," he says, contrary to where the index stands today, 50 points away from 4,000.

"If Grantham… is right," Fortune says, "it means the S&P 500 has another 25% drop ahead of it from current levels." Which jibes with what's happened after two mid-recession "relief rallies" in the U.S….

Source: First Trust Advisors

According to the chart, the dot-com crash of 2000 took a 3.4-month hiatus, during which the S&P 500 recovered 21.4%. And the Great Recession (2007–09) took a six-week breather, while the S&P rallied 24.2%.

But both "relief rallies" were followed by cliff dives, averaging over 30%... So a 25% drop might be on the conservative side?

"There is absolutely nothing to stop the market from going below fair value," says Grantham. "It's certainly entitled to spend several months below 3,000."

Since last year, Grantham has been calling attention to the bull market's finale, underscoring a "superbubble" that includes a miasma of risky assets, U.S. stocks and housing.

"We have been through one of the great speculative periods" — spurred by stimulus programs and dovish monetary policy — and (voilà!) it created "a perfect environment for speculating," he says. "That kind of [speculative] investing has always turned out to be, for most people, incredibly expensive."

But hey, if you've got 30 more years to invest?

"You should welcome lower prices because the compounding effect will be greater than the pain on your portfolio," Grantham says. "The younger you are, the more you should welcome a market decline." (Conversely, the older you are… Well, you get the point.)

As for the arrival — and duration — of the market's second-leg downturn, he declines to guesstimate. "You can't really know if it's going to be quick or long," he says.

"What is guaranteed," Fortune concludes, "in Grantham's view, is that corporate earnings will fall as recession fears and interest rates rise, leading stocks to take a hit."

If you've been following Jim Rickards' work this year, then you know he agrees with Mr. Grantham's estimation: A day of catastrophic reckoning is heading for the U.S. stock market.

And soon millions of Americans are going to be feeling the pain.