Expert investor James Stack warned of rampant market speculation, predicted inflation, and blasted the Fed in a recent interview. Here are the 8 best quotes

James Stack
James Stack.

  • James Stack called out massive speculation in stocks, real estate, crypto, and other markets.
  • The investor said Federal Reserve policies are fueling reckless behavior on Wall Street.
  • Stack drew parallels between the current market boom and the dot-com and housing bubbles.
  • See more stories on Insider’s business page.

James Stack warned of rampant speculation across multiple markets, rang the inflation alarm, and urged investors to be careful in a recent MarketWatch interview.

Stack is the founder and CEO of Stack Financial Management, as well as the publisher of the InvesTech Research newsletter. He compared the Federal Reserve’s stimulus efforts to spiking Wall Street’s punchbowl, cautioned houses are more overpriced now than during the mid-2000s housing bubble, and likened the hype around SPACs and NFTs to the dot-com boom.

Stack’s firm takes a “safety-first” approach to investing, paying close attention to market risk and historical trends. It boasted a $1.2 billion stock portfolio at the end of March, which included a $97 million stake in Microsoft, and roughly $50 million stakes in each of Accenture, Cisco, and Walmart.

Here are Stack’s 8 best quotes from the interview, lightly edited and condensed for clarity:

1. “The Fed brought the punchbowl back to the party and, particularly when the pandemic hit, they decided to add more and more alcohol to it. There’s a lot of participants on Wall Street investing like they’re a little bit inebriated.” – describing the impact of the Federal Reserve’s expansionary policies since 2019.

2. “We have more of an upside disparity between housing prices and long-term inflation than we did in the housing bubble in 2005.” – Stack Financial’s housing barometer estimates US house prices are 43% above the long-term inflation trend, exceeding their 35% premium in 2005.

3. “Speculative psychology tends to spill over into multiple asset classes. Stocks are very, very expensive by most historical measures, but we’re also seeing it in real estate, we’ve seen it in cryptocurrencies – bitcoin shot up to $60,000 and now is struggling to stay above $30,000.”

4. “Our housing prices have gone ballistic. It seems that everyone’s quitting their job to become a realtor. It brings back all the memories of 2005-2006.” – describing the local housing market in Flathead Valley, Montana.

5. “Speculative excess is spilling over into all of the new IPOs, the SPACs. We’re raising money and we don’t know what we’re going to do with it. Then we’ve got the new NFTs, digital art – it’s so extreme, it’s almost nonsensical. But it’s not unusual. We saw it in the late 1990s, when companies could go public that had never made a penny. We’re starting to see a lot of that today in the meme stocks favored by new, young traders.”

6. “The bubble is invisible to those inside the bubble. Don’t go to someone investing in NFTs and try to tell them that they’re speculating in a bubble that could be almost worthless. You’re going to get in an argument that you can’t win except in the aftermath.”

7. “We are in one of the most overvalued markets in history and one of the most speculative-excess periods in history, so you don’t have to be fully invested today. If you’re going to invest in today’s market, don’t go out buying the SPACs, or the stocks that have infinite PE ratios, because they have yet to make earnings. I would put higher allocations into those sectors that are going to benefit from, or at least be resilient to, increasing inflation.”

8. “When the Fed does decide to start taking the punchbowl away, growth stocks are where the pains could be felt the greatest. Think ‘safety first,’ walk softly, and carry a comfortable cash reserve.”

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‘Big Short’ investor Michael Burry compared the meme-stock craze to the dot-com and housing bubbles – and warned of an impending crash

Michael Burry Getty
Michael Burry.

  • Michael Burry said the meme-stock craze reminded him of the dot-com and housing bubbles.
  • “The Big Short” investor predicted the buying frenzy would end in a brutal crash.
  • Burry also explained why becoming a meme stock can be a huge boon for a company.
  • See more stories on Insider’s business page.

Michael Burry warned the frenzied buying of meme stocks reminded him of the dot-com boom and housing bubble in a recent Barron’s interview, and predicted the social-media favorites would plummet in value soon.

The Scion Asset Management chief noted the people who went all-in on technology stocks at the turn of century, and those who took out massive loans to buy multiple homes in the mid-2000s, didn’t expect the good times to end. Meme-stock investors are falling into the same trap and risk getting burned, he said.

“We probably do not have to wait too long, as I believe the retail crowd is fully invested in this theme, and Wall Street has jumped on the coattails,” Burry told Barron’s in an email. “We’re running out of new money available to jump on the bandwagon.”

Burry is best known for his billion-dollar bet against the housing bubble in the mid-2000s, which was immortalized in the book and the movie “The Big Short.” He also took a stake in GameStop in 2019 and underscored the video-game retailer’s potential in letters to its board, emboldening retail investors to execute a short squeeze of the meme stock at the start of this year.

The Scion chief told Barron’s that Wall Street professionals are now tracking social-media chatter and cashing in on the latest meme stocks.

“They are in a better position than retail to participate, sniff out and start gamma squeezes in the options market,” he said. A “gamma squeeze” refers to buying call options on a stock to force market makers to purchase the underlying shares to hedge themselves, which in turn pushing the stock price up even more.

Burry, who has been warning of an historic market crash for months, also trumpeted the success of his GameStop wager. While he exited the position before the stock skyrocketed in January, he still turned a sizeable profit. “If I get within years of a thesis coming true, I’m happy,” he said.

Finally, the investor emphasized that for an ailing business like GameStop or AMC Entertainment, being picked as a meme stock is like hitting the jackpot. They can issue shares at inflated prices to rake in huge sums, allowing them to pay off their debts, invest in their operations, and revitalize their prospects.

“This is a Godsend for these companies,” Burry told Barron’s. Indeed, GameStop went from spending nearly $200 million to repurchase 37% of its outstanding shares in 2019, to raising over $1.6 billion from share sales in the first six months of this year.

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Legendary investor Jeremy Grantham sees a housing bubble in almost every market – and says the Nasdaq and SPACs have likely peaked

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Jeremy Grantham is highly regarded in markets as a value investor.

  • Jeremy Grantham said housing was “bubbly” in almost every major market in the world.
  • He told a Morningstar conference the SPAC boom and the Nasdaq had likely peaked.
  • Grantham, who cofounded GMO, also said “pessimism termites” might soon get the rest of the market.
  • Sign up here our daily newsletter, 10 Things Before the Opening Bell.

Jeremy Grantham said on Wednesday that real-estate bubbles were popping up in almost every market around the world and that eventually there’d be a “day of reckoning.”

The legendary investor, who cofounded the asset-management firm GMO, also said the market for special-purpose acquisition companies, or SPACs, had likely peaked, along with the tech-heavy Nasdaq stock index.

And he said “pessimism termites” may soon get to the rest of the market.

Speaking at the Morningstar Australia investment conference, Grantham compared the state of housing markets across developed economies to the 2008 financial crisis.

“This time you look around and you find the real estate is suddenly pretty bubbly in almost every interesting market in the world,” he said.

In the US, the Case-Shiller house-price gauge soared 13.2% year-over-year in March. In the UK, house prices shot up 10.9% year-over-year in April as a result of government stimulus and people looking for more space.

“You can’t keep an asset class like housing, where the house doesn’t change, and you’re just marking it up in real terms year after year,” Grantham said. “Eventually there’ll be a day of reckoning.”

Grantham, one of the most famous investors in cheap or “value” stocks, also said the SPAC market appeared to have been a bubble that has popped.

He said an index of SPACs – blank-check companies that go public before finding a target to merge with – was down sharply from its all-time high while many of the shell entities were trading below their initial price.

He said the Nasdaq had probably also peaked in February. On Wednesday, the tech-laden stock index was about 3% off its all-time high, reached in April.

Read more: Legendary investor Jeremy Grantham called the dot-com bubble and the 2008 financial crisis. He told us how 4 indicators have lined up for what could be ‘the biggest loss of perceived value from assets that we have ever seen.’

Grantham is a prominent bear, or someone who believes prices are about to fall. Many investors have come to discount his pronouncements given that stocks have consistently hit all-time highs over the past year.

Grantham continued his bearish theme at the Morningstar conference, saying that “pessimism termites” might “get to the rest of the market” in a few months. He said there were signs of craziness, particularly in the sky-high prices of electric-vehicle stocks such as Tesla.

“We’ve turned the pressure up and up, more money, more moral hazard, and here we are at the peak,” he said.

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5 warning signs in the real-estate market that recall the mid-2000s housing bubble

housing
  • Several gauges of housing market activity mirror trends seen just before the bubble burst in 2008.
  • Experts see the current boom as far safer than the prior rally, citing stronger lending requirements.
  • Still, here are trends ranging from home prices to construction activity that resemble 2005 and 2006.
  • See more stories on Insider’s business page.

Housing-market monitors keep repeating the phrase “since 2005,” except when it’s “since 2006.” That’s worrying – both superlatives refer back to the peak of a historic real-estate bubble.

Low mortgage rates and massive demand have powered a supercharged rally for US housing over the last year. Americans snapped up nearly all the available supply of new and previously owned homes amid huge population shifts from cities to suburbs. Chronic underbuilding after the financial crisis left contractors struggling to meet the new demand with adequate supply. That imbalance has since pushed selling prices skyhigh.

The boom’s frenetic nature has led many to compare the current market with that seen just before the infamous 2008 crash. Experts have been quick to note that, while some similarities exist, the latest price surge has more to do with a lack of inventory than dubious lending standards.

“I don’t see the kind of financial stability concerns that really do reside around the housing sector,” Federal Reserve Chair Jerome Powell said last month. “We don’t see bad loans and unsustainable prices and that kind of thing.”

But just because the market looks different on a macro level doesn’t mean there aren’t strong similarities to the period just before the bubble burst. Here are five housing-market signals flashing the same signs seen about 15 years ago.

(1) CoreLogic Home Price Index

Possibly the most basic indicator of just how much demand has outstripped supply is nationwide price indexes.

The headline price gauge for housing-data authority CoreLogic soared 11.3% year-over-year in March, according to a Tuesday report. That marks an acceleration from the February rate of 10.4% and the fastest rate of price growth since March 2006. On a month-over-month basis, prices rose 2% from their February levels.

The financial analytics firm sees that momentum cooling over the next year. A persistent wearing-away of home affordability will likely curtail some purchases, and accelerated construction will shore up supply in the months ahead, CoreLogic said. Still, year-over-year price growth should reach 3.5% as lingering demand keeps the rally alive, Frank Martell, the president and CEO of CoreLogic, said in a statement.

“With prospective buyers continuing to be motivated by historically low mortgage rates, we anticipate sustained demand in the summer and early fall,” he said.

(2) S&P CoreLogic Case-Shiller Index

Separately, a more city-focused measure of home-price inflation notched a similar reading last week. Home prices in metropolitan areas gained 12% year-over-year in February, according to the S&P CoreLogic Case-Shiller Home Price Index, the headline index of US home prices for more than three decades. The reading signals the strongest price growth since 2006 and edged slightly higher from the prior annual gain of 11.2%.

Inflation was broad-based. All 20 cities saw home prices climb, and 19 cities saw year-over-year price growth accelerate from January to February. Prices rose the most in Phoenix, San Diego, and Seattle, according to S&P.

(3) Selling prices for new vs. previously owned homes

Digging deeper into home sales reveals an unusual phenomenon unseen since the previous boom. For the first time since 2005, Americans spent more on previously owned single-family homes than on new construction, according to March housing data from the Census Bureau and the National Association of Realtors.

The dynamic signals Americans are prioritizing buying any available home instead of hunting down a new unit.

To be sure, monthly sales data is volatile and the premium for new homes could reemerge in April data. But with supply still under pressure and CoreLogic’s Tuesday report showing prices broadly climbing higher last month, the phenomenon might linger for some time.

(4) Home starts

As gauges of market demand soar to 15-year highs, so have measures of upcoming supply. Housing starts surged nearly 20% in March as contractors rushed to address the lack of new homes for sale. The leap places the annual rate of starts at its highest since 2006 and serves as the largest month-over-month gain since 1990. Permits for new residential construction also increased, albeit at a slower rate.

The rebound was somewhat prompted by winter storms curbing construction activity in February. But for the most part, a historic shortage of available homes fueled the pickup in building. Just 1.07 million existing homes were up for sale in March. That sum, at the current purchase rate, would be snapped up in only two months.

Homebuying has slowed from its pandemic-era peak, giving contractors slightly more time to meet the elevated demand. With millennials hitting peak homebuying age and lumber prices expected to decline, some economists see the rebound in construction paving the way for more moderate price growth.

(5) Home equity take-out

The sustained acceleration of home price growth has also lead owners to take out equity at the same rate seen in the mid-2000s. Homeowners refinancing their mortgages pulled roughly $50 billion in equity out of their homes throughout the fourth quarter of 2020, according to data from Freddie Mac and the Urban Institute.

Mortgage rates, while still at historically low levels, reversed their pandemic-era decline through the first quarter as investors braced for the economic recovery to give way to higher borrowing costs. Those higher rates erased the rate-reduction incentive for refinancing, making equity take-out the top reason to refinance, the Urban Institute said in a report published April 27.

Although equity take-out on its own is normal, the sharp uptick seen last year could be cause for concern. Some economists have criticized the Fed’s ultra-accommodative policy for encouraging risk-taking across various markets. Increased equity take-out presents new financial risks for participating homeowners since a decline in home prices from their skyhigh levels could cut deeply into their balance sheets.

And while equity take-out sits at its 2005 level, it is still well below the 2006 peak. Yet with mortgage rates expected to climb over the next few years, take-out refinancing could accelerate further.

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The housing market is the hottest it’s been since right before the 2008 crash – but there’s far less bubble risk this time around

buying home
  • Home price growth and construction are the hottest they’ve been since 2006 – the peak of a housing bubble.
  • Despite the similarities of some housing data from 15 years ago to today, experts see two very different markets.
  • Conditions driving this market boom are “fundamentally, radically different,” an economist told Insider.
  • See more stories on Insider’s business page.

Housing data is hitting levels unseen since 2006 in at least three different ways, begging the question of whether this is another bubble. Experts say this isn’t that – it’s economics.

Another housing bubble 15 years after the last one would be very bad news, as the epic pop of that market in 2008 threatened the stability of the entire global financial system. But while today’s price inflation is similar to then, the drivers behind this market rally look different.

Nationwide home prices grew 12% year-over-year – their fastest pace since 2006 – this past February, according to the S&P CoreLogic Case-Shiller Index. Gains were broad-based, with all 20 cities tracked by the index experiencing price growth above their respective median levels.

Separately, CoreLogic’s own home-price index also recorded the highest annual leap since 2006 in February. That gauge tracks home prices across the country, while S&P’s index measures prices in 20 metropolitan areas.

Also, for the first time since 2005, the median sale price for previously owned single-family homes is higher than that for new construction. In other words, the premium Americans typically pay to be the first to live in a new house has been completely erased as homebuyers have rushed to buy any home on the market.

“The conditions underlying what happened way back then, during the bubble of ’05 and ’06, and what’s driving price growth today are just fundamentally, radically different,” Frank Nothaft, chief economist for CoreLogic, told Insider.

Where dubious lending and market euphoria powered the mid-2000s surge, today’s boom is almost entirely due to a nationwide supply shortage. The monthly supply of homes sits near record lows of about 3 months, leading sellers to demand increasingly large sums for their properties. That compares to more than 12 months of supply in 2009.

Today’s market is also backed by a strong underwriting process and isn’t engulfed in a subprime mortgage crisis, Nothaft explained. The price growth we are currently experiencing, he continued, “is rooted in economics.”

Record low mortgage rates and the heightened focus on space have sent buyer demand through the roof, but a pullback from prospective sellers and a lack of newbuilds have resulted in a national decline in homes for sale.

“When you put all these pieces together, increase in demand and limited supply, it pushes prices up and that’s what we’re seeing in the marketplace,” Nothaft added.

Learning from post-crisis mistakes

Other gauges aren’t just at their hottest levels since 2006, but their hottest levels full-stop. The median selling price for existing homes touched a record high of $329,100 in March, according to the National Association of Realtors. And though the supply of previously owned homes has edged higher in recent months, it’s still close to February’s all-time low of 1.03 million units.

“We’ve been underbuilding for years,” Gay Cororaton, director of housing and commercial research for the National Association of Realtors (NAR), told Insider.

The shortage can be traced back to that 2008 housing crash and its long-term fallout. The buying frenzy seen throughout the 2000s had fueled a boom in new construction as builders rushed to meet unprecedented demand. But once the bubble burst, contractors pulled back on building in an effort to prop up demand. Construction rebounded slowly through the last decade, leaving the market with diminished inventories once the pandemic-era boom began.

Daryl Fairweather, chief economist at Redfin, told Insider that the last decade saw a massive drop-off in homebuilding. Fewer homes were built by a factor of 20 going all the way back to the 1960s, she said.

But the latest data suggests contractors are finally heeding the market’s call. Home starts leaped nearly 20% last month to the highest level since, you guessed it, 2006. The reading also marks the largest month-over-month increase since 1990, underscoring the urgency faced by homebuilders.

Americans also seem prepared to keep the market boom alive for at least a while longer. The share of consumers planning to buy a home in the next six months rose to 8.9% in April from 8.1%, according to The Conference Board’s Consumer Confidence Index. That’s the highest proportion since 1987.

With millennials reaching peak homebuying age, supply bouncing back, and mortgage rates expected to move up slightly, economists don’t expect the housing rally to pop, but instead settle into more sustainable growth.

“I think we will return more to the trend that we were seeing pre-pandemic,” Nothaft said, which showed steady national price growth in the single digits. In February 2020, home prices increased by 4.1% year-over-year.

For millennials, who are entering or at peak homebuying age, that would represent a return to a pre-pandemic dynamic of record low mortgage rates but a housing market that still felt out of reach. It may not be a bubble, but it isn’t exactly attainable, either.

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