Famed investor Jeremy Grantham warns of 'painful' consequences from the oil spike

• Jeremy Grantham is warning investors of a "dangerous" investing climate.
• The famed investor is eyeing painful consequences of higher oil price.
• He also flagged the risk of massive job losses and a demand shock stemming from AI.

An investing legend has a warning for investors: more pain is likely coming.

Jeremy Grantham, the famed bubble watcher and cofounder of GMO, said he believes the outlook for the US economy in markets looked "dangerous." That's due to a confluence of bearish factors, he said, pointing in particular to the Iran war and the "painful" ramifications of higher oil prices.

Oil has soared since the conflict first unfolded in the Middle East, with Brent crude and US both eclipsing $100 a barrel. Brent briefly approached $120 before edging lower.

Markets have never seen a "major move" up in oil without the US economy tumbling into a recession, Grantham said.

"Nothing is ever sustained, but that is clearly painful and will create balancing effects — markets get weak, demands gets less, etc.," the investor said, speaking on an episode of the "The Master Investor" podcast published Monday.

"You know, things can get bad in a real hurry," he added of the economic outlook.

Economists have frequently compared the Iran-fueled price spike with oil shocks that have caused recessions in the past, like the one that occurred in the late 70s and early 80s. The fear is that more expensive oil products could fan inflation and dent consumer spending, though the US economy is generally considered to be less reliant on oil than it was several decades ago.

Grantham, who rose to fame after calling the dot-com bubble and the subprime mortgage crisis, said he sees a confluence of other risks facing markets, including climate change, the decline in the world's population, and rising geopolitical and trade tensions.

He also said he sees big risks associated with AI. Despite the productivity potential, fears are swirling around the technology's potential to spark massive job losses.

"You're absolutely, profoundly going to unbalance supply and demand here."

Stocks don't appear to be properly pricing in those risks, Grantham said, adding that he believed the market was in its second- or third-most highly valued period in history.

In the past, he's warned of a market bubble comparable to the one that blew up equities in the 1920s.

"If you think the future looks one of two or three best futures that we have ever had in the last hundred years, you're smoking dope," Grantham said. "This is a fraught, dangerous, growth-limiting world now."