Crypto looks like the dotcom space of the 1990s, and bitcoin may not survive it, investment chief says

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Bitcoin climbed on Thursday morning

Cryptocurrencies are like the dotcom space of the 1990s, and bitcoin may well be overtaken by competitors in the way Microsoft and Google overtook the once-dominant Netscape Navigator, the chief investment officer of Société Générale’s UK private bank has said.

Fahad Kamal, the investment boss at SocGen’s Kleinwort Hambros bank, told Insider he is convinced the blockchain technology upon which bitcoin runs will be very important over the next decade.

But he said regulatory threats, its high energy use, and competition from other cryptocurrencies could mean bitcoin is not a part of the landscape over the next 10 years.

“The cryptocurrency space today looks very similar to the internet space in 1997,” Kamal said. “In 1997, we thought Netscape Navigator was by far the most advanced sophisticated browser and there would never be anything to compete with that. And obviously here we are, Netscape is long [gone].”

He added: “In 10 years, I have no doubt that blockchain technology is going to be a very serious force in our lives. I have much, much less conviction or faith in whether bitcoin will be around that long.”

Kamal said competition was a threat. “There are other cryptocurrencies… which are arguably much better in their construction and in their underpinnings. Ethereum, for example.”

He said bitcoin’s massive energy consumption and use in illicit finance mean it could become a target for strict regulations, similar to what is being considered in Turkey, where the government is cracking down on crypto use.

Earlier on Wednesday, Goldman Sachs said in a note bitcoin’s lack of real uses and its weak environmental scoring “makes it vulnerable to losing store-of-value demand to another, better-designed cryptocurrency.”

But other people say bitcoin’s sheer market size – the combined value of all bitcoins is more than $1 trillion – mean it is unlikely to fade away.

“Shark Tank” star and investor Mark Cuban has argued bitcoin is akin to Amazon, which survived the dotcom bubble popping in 2000 and went on to dominate global retail.

In January he tweeted: “Watching the cryptos trade, it’s EXACTLY like the internet stock bubble. EXACTLY. I think BTC, ETH, a few others will be analogous to those that were built during the dotcom era, survived the bubble bursting and thrived, like AMZN, EBay, and Priceline. Many won’t.”

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8 reasons why fears of a stock-market bubble are overblown, according to Goldman Sachs

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Goldman Sachs said that fears of a bubble were overblown.

  • Goldman Sachs said that fears of a bubble in markets were overblown, despite a few concerning signs.
  • The analysts gave eight reasons, including lower levels of leverage and risk-taking.
  • They also said the boom in tech stocks had a firmer basis than in the dot-com bubble of the 1990s.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

With retail traders driving up stocks like GameStop, blank-check companies booming, and bitcoin soaring, many investors are worried about bubbles in financial markets.

But Goldman Sachs analysts said in a note on Monday that fears about bubbles were overblown. There are a few worrying signs, but markets now appear much safer than they were during the dot-com crash or the 2008 financial crisis, they said.

Here are the eight key reasons investors should not be overly concerned about the recent market frothiness, according to Goldman analysts including Peter Oppenheimer and Sharon Bell.

1. The stock-market rally is driven more by fundamental factors.

In bubbles such as the dot-com boom of the late 1990s, investors drove up asset prices with little rational basis, and the fear of missing out triggered buying frenzies.

The rise in stock prices over the past few years, particularly in tech, “has been impressive” but “is not nearly as extreme as the explosive rise that accrued during the late 1990s,” Goldman said.

The rally in tech firms can mostly be justified by “superior growth and fundamentals,” the note said, with earnings far outstripping the rest of the market.

2. The “equity risk premium” measure does not look worrying.

Goldman said that much of the market frothiness could be explained by record-low interest rates around the world.

The bank’s analysts pointed to a key measure of stock value, the equity risk premium, or the extra return investors get on stocks compared with holding risk-free bonds.

Goldman said that in the bubble of the late 1990s, investors were so confident about growth that they were prepared to buy stocks offering a dividend yield of 1% when they could make 6.5% holding bonds.

But record-low interest rates and better prospects today mean the equity risk premium is higher, suggesting investors are much more justified in bidding up stocks.

Read more: Cowen says buy these 10 retail stocks before a colossal wave of consumer spending sends them skyrocketing – including one expected to surge 71%

3. Market concentration has increased – but is not dangerous.

Goldman said Facebook, Apple, Amazon, Microsoft, and Google were increasingly dominant, with a market capitalization nearly three times the annual GDP of India.

But the bank’s analysts said that such a concentration “has reflected strong fundamental growth, rather than the hope, or promise, of returns far into the future.” This suggests it’s far more sustainable than in previous asset rallies.

4. A big jump in retail trading has followed years of outflows from equities.

The GameStop saga in January brought the power of retail investors to the attention of Wall Street.

Goldman said that the rise in amateur investing had been “breathtaking” and that one of its key measures of risk-taking had hit a level associated with a 10% drop in stock markets.

But the analysts said that “while flows have been significant of late, we have come from many years of outflows from risk assets like equities.”

5. Credit is cheap, but investors aren’t being overly risky.

Central-bank interest rates are at record lows, as were bond yields until recently, making borrowing very cheap.

But Goldman said that speculative bubbles are associated with banks and companies funding risky activities through debt and with a collapse in household savings, which “is not the case today.”

Banks are very strong thanks to reforms, the note said, adding that US households had accumulated about $1.5 trillion in savings during the COVID-19 pandemic.

6. Mergers and acquisitions are booming from a low base.

The excitement about special-purpose acquisition companies, or SPACs, has many investors worried about frothy markets.

“Booming M&A activity and equity issuance are reminiscent of activity rates in previous cycles,” Goldman said.

But it added that the activity did not appear excessive “when adjusted for the market capitalization of equity markets.”

7. The surge in certain sectors is driven by profitable companies.

Market bubbles are often driven by an enthusiasm for new technologies, such as the internet in the dot-com era.

Goldman said that while tech and green stocks had indeed boomed, a fall in these stocks should not lead to widespread company collapses, as most of them are profitable.

8. Stocks are rising as economies recover from a slump.

The Wall Street bank said the powerful rally in stocks from last March to September was typical of a “hope” phase of a bull-market run after an economic slump.

“This phase is generally followed by what we call the ‘growth’ phase,” when earnings pick up, it said, though there could be bumps along the way.

Read more: Hedge funds are ramping up bets against Chamath Palihapitiya’s SPACs and have already taken home $40 million this year. Here’s a detailed look at the wagers they’re making.

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Goldman Sachs says fears of a stock-market bubble are overblown for these 8 reasons

GettyImages 1158933047
Goldman said fears of a bubble are overblown

  • Goldman Sachs said fears of a bubble in markets are overblown, despite a few concerning signs.
  • The Wall Street giant’s analysts gave 8 reasons why, including lower levels of leverage and risk-taking.
  • They also said the boom in tech stocks has a firmer basis than the dotcom bubble of the 1990s.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

With retail traders driving up stocks like GameStop, blank-check companies booming, and bitcoin soaring, many investors are worried about bubbles in financial markets.

But Goldman Sachs analysts said in a note on Monday fears about bubbles are overblown. There are a few worrying signs, but markets now appear much safer than during the dotcom crash, or 2008 financial crisis, they said.

Here are the 8 key reasons investors should not be overly concerned about the recent market frothiness, according to Goldman analysts including Peter Oppenheimer and Sharon Bell.

1. The stock-market rally is driven more by fundamental factors than investor craziness

Past bubbles such as the dotcom boom of the late 1990s saw investors drive up asset prices with little rational basis, with buying frenzies triggered by the fear of missing out.

Goldman said the rise in stock prices over the last few years, particularly in tech, “has been impressive… but it is not nearly as extreme as the explosive rise that accrued during the late 1990s.”

The rally in tech firms can mostly be justified by “superior growth and fundamentals,” the note said, with earnings far outstripping the rest of the market.

2. The key ‘equity risk premium’ measure does not look worrying

Goldman said much of the market frothiness is explained by record-low interest rates around the world.

The bank’s analysts pointed to a key measure of stock value, the equity-risk premium. This is the extra return investors get on stocks compared to holding risk-free bonds.

Goldman said in the bubble of the late 1990s, investors were so confident about growth they were prepared to buy stocks offering a dividend yield of 1% when they could make 6.5% holding bonds.

But record-low interest rates and better prospects today mean the equity-risk premium is higher, suggesting investors are much more justified in bidding up stocks.

3. Market concentration has increased – but is not dangerous

Goldman said Facebook, Apple, Amazon, Microsoft and Google are increasingly dominant, with a market capitalization nearly 3 times the annual GDP of India.

But the bank’s analysts said such a concentration “has reflected strong fundamental growth, rather than the hope, or promise, of returns far into the future.” This suggests it is far more sustainable than in previous asset rallies.

4. A big jump in retail trading has followed years of outflows from equities

The GameStop saga in January brought the power of retail investors to the attention of Wall Street.

Goldman said the rise in amateur investing has indeed “been breathtaking.” And it said one of its key measures of risk-taking has hit a level associated with a 10% drop in stock markets.

Yet the analysts said: “While flows have been significant of late, we have come from many years of outflows from risk assets like equities.”

5. Credit is cheap, but investors aren’t being overly risky

Central bank interest rates are at record lows, as were bond yields until recently, making borrowing very cheap.

But Goldman said speculative bubbles are associated with banks and companies funding risky activities through debt, and a collapse in household savings, which “is not the case today.”

Banks are very strong thanks to post-crisis reforms, the note said. US households have accumulated around $1.5 trillion in savings during COVID-19, the bank said.

6. Mergers and acquisitions are booming from a low base

The mania for special-purpose acquisition companies, or SPACs, has many investors worried about frothy markets.

Goldman said: “Booming M&A activity and equity issuance are reminiscent of activity rates in previous cycles.”

But it added activity does not appear excessive “when adjusted for the market capitalization of equity markets.”

7. The surge in certain sectors is driven by profitable companies

Market bubbles are often driven by a craze for new technologies, such as the internet in the dotcom era.

Goldman said tech and green stocks have indeed boomed. But the analysts said a fall in these stocks should not lead to widespread company collapses, as most of them are profitable.

8. Stocks are rising as economies recover from a slump

The Wall Street bank said the powerful rally in stocks from March to September last year was typical of a “hope” phase of a bull-market run after an economic slump.

“This phase is generally followed by what we call the ‘growth’ phase,” they said, when earnings pick up, although there could be bumps along the way.

Read the original article on Business Insider

Warren Buffett’s favorite market gauge surges to record high, signaling global stocks are overpriced and poised to tumble

Warren Buffett
Warren Buffett.

  • Warren Buffett’s favorite metric suggests global stocks are pricier than ever.
  • The “Buffett indicator” reached 123%, exceeding its level during the dot-com boom.
  • Economic shutdowns and government stimulus have fueled the record readings.
  • See more stories on Insider’s business page.

Warren Buffett’s preferred market gauge has surged to an all-time high, signaling global stocks are extremely overpriced and could crash in the coming months.

The global version of the “Buffett indicator” has breached 123%, surpassing its previous record of 121% during the dot-com bubble. The milestone was first highlighted by the Welt market analyst Holger Zschaepitz on Twitter.

The metric takes the combined market capitalizations of publicly traded stocks worldwide, and divides it by global gross domestic product. A reading of 100% or more suggests the global stock market is overvalued relative to the world economy.

Buffett, the billionaire investor who runs Berkshire Hathaway, trumpeted the indicator in a Fortune magazine article in 2001. He described it as “probably the best single measure of where valuations stand at any given moment.”

When the yardstick hit a record high before the dot-com bubble burst, that should have been a “very strong warning signal,” Buffett added.

However, Buffett’s favorite indicator has several shortcomings. For example, it compares current stock valuations to past GDP figures. Not all countries provide regular, reliable GDP data either.

The gauge’s elevated level also reflects the fact that pandemic-linked lockdowns, business closures, and travel restrictions have depressed economic growth. Meanwhile, government interventions have artificially pumped up stock prices.

For example, the Buffett indicator continues to flirt with record highs in the US, partly because federal officials have pumped trillions of dollars into the economy over the past year.

Here’s the global version of the Buffett indicator:

Buffettindicatorglobal_0321
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‘Shark Tank’ star Mark Cuban compares Bitcoin boom to dot-com bubble, and warns many cryptocurrencies won’t survive the coming crash

mark cuban

  • Mark Cuban compared the cryptocurrency boom to the dot-com bubble, recommended buyers hedge their bets, and warned them about the dangers of debt in a string of tweets this week.
  • “Watching the cryptos trade, it’s EXACTLY like the internet stock bubble,” the “Shark Tank” star and billionaire owner of the Dallas Mavericks said.
  • Cuban sold his startup to Yahoo in 1999 and managed to protect his billion-dollar windfall when the market crashed a few months later. “My advice? Learn how to hedge,” he tweeted.
  • “If you are taking on debt that you can’t afford to pay back to invest in crypto (or stocks or currencies), YOU ARE A FOOL and there is a 99% chance you will lose EVERYTHING,” Cuban added.
  • Visit Business Insider’s homepage for more stories.

Billionaire investor Mark Cuban compared the Bitcoin boom to the dot-com bubble in a flurry of tweets this week, predicting a large number of cryptocurrencies won’t survive the coming crash.

“Watching the cryptos trade, it’s EXACTLY like the internet stock bubble,” the “Shark Tank” star and Dallas Mavericks owner said. The cryptocurrency market recently achieved a $1 trillion market capitalization for the first time, as Bitcoin and other digital coins more than quadrupled in value over the past year.

“I think Bitcoin, Ethereum, a few others will be analogous to those that were built during the dot-com era, survived the bubble bursting and thrived, like Amazon, eBay, and Priceline,” Cuban continued. “Many won’t.”

Read more: The CIO of a $500 million crypto asset manager breaks down 5 ways of valuing bitcoin and deciding whether to own it after the digital asset breached $40,000 for the first time

Bitcoin, which hit a record high above $41,000 less than a week ago, fell by as much as 21% on Monday to trade around $30,100, before recovering to $35,500 by Tuesday.

Cuban sold his internet-radio startup, Broadcast.com, for $5.7 billion to Yahoo in 1999. He received $1.4 billion of the search giant’s stock as a result, and swiftly enlisted Goldman Sachs to help protect his windfall as he recognized the frenzy around technology stocks wouldn’t last much longer. He advised crypto buyers to follow his lead and hedge their bets too.

“MANY fortunes will be made and LOST as we find out who has the stomach to HODL and who doesn’t,” he tweeted, using the acronym for “hold on for dear life” which is popular among crypto fans. “My advice? Learn how to hedge.”

The tech billionaire also cautioned crypto buyers against overextending themselves financially.

“If you are taking on debt that you can’t afford to pay back to invest in crypto (or stocks or currencies), YOU ARE A FOOL and there is a 99% chance you will lose EVERYTHING,” he said. “Personal disaster stories are built on leverage.”

Read more: Goldman Sachs says to buy these 29 stocks poised to deliver the strongest sales growth through year-end

Finally, Cuban downplayed claims that crypto is an alternative to fiat currency or a hedge against currency debasement, describing them as “sales pitches.” Insiders also tried to justify the sky-high prices of internet companies in the late 1990s, he pointed out.

“Crypto, much like gold, is supply and demand driven,” he tweeted. “The biggest sales pitch is scarcity vs demand. That’s it.”

Read more: An ETF expert breaks down his top 5 predictions for the industry in 2021 – including 4 funds that are among the best to buy, and why ARK Invest won’t be able to repeat its dominance

Cuban’s warnings about crypto echo his comments last year on the day-trading boom. He said the rush of retail investors into Hertz, JCPenney, Kodak, and other questionable stocks “feels just like” the dot-com bubble.

“You’re doing the same thing they did in the late ’90s,” Cuban continued. “You’re rolling it. You think everybody is a genius in a bull market.”

“‘I have to go all in’ – that’s the type of thing that we saw exactly in the internet bubble,” he added.

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