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.

Read the original article on Business Insider

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

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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

Ray Dalio said in a blog post that he sees ‘classic bubble dynamics’ across the market. Here are 12 of the best quotes.

FILE PHOTO: Ray Dalio, Founder, Co-Chief Executive Officer and Co-Chief Investment Officer, Bridgewater Associates attends the annual meeting of the World Economic Forum (WEF) in Davos, Switzerland, January 18, 2017. REUTERS/Ruben Sprich
  • Bridgewater boss Ray Dalio said in a recent blog post that there are “classic bubble dynamics” across the market.
  • He said the economics of bond investing in particular were “stupid,” and warned a sell-off could be coming.
  • Dalio recommended “a well-diversified portfolio of non-debt and non-dollar assets.”
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Bridgewater Associates boss Ray Dalio does not like what he sees when he looks out across the market.

In a major blog post on Monday, he said there are “classic bubble dynamics in so many different assets.”

Dalio, ranked by LCH Investments as the best-performing hedge fund manager of all time, said a long-term debt cycle that has seen investors gorge on bonds may be about to end, which could be “traumatic for most everyone.”

The founder of $150 billion fund Bridgewater spoke for many investors who are concerned about the recent jitters in the bond market continuing and becoming destabilizing.

He also said that the “economics of investing in bonds… has become stupid,” while sharing some strategy ideas to combat low returns. And he said the US may become “inhospitable to capitalists.”

Here are 12 of the key quotes:

Market bubbles

1. “There’s just so much money injected into the markets and the economy that the markets are like a casino with people playing with funny money. They’re buying all sorts of things and pushing yields on everything down. Now you have stocks that have gone up, and you have classic bubble dynamics in so many different assets.”

2. “The increased supply of money injected into the system bids up investment asset prices and can cause financial market bubbles even when actual economic conditions are still weak.”

3. “Bonds have been in a 40-year bull market that has rewarded those who were long and penalized those who were short, so the bull market has produced a large number of comfortable longs who haven’t gotten seriously stung by a price decline. That is one of the markers of a bubble.”

Read more: Goldman Sachs says to buy these 29 cheap stocks set to generate higher earnings next year as interest rates and bond yields continue to rise

Bond market woes

4. “The economics of investing in bonds (and most financial assets) has become stupid…. if you buy bonds in [the US, Europe, Japan or China] now you will be guaranteed to have a lot less buying power in the future.”

5. “If bond prices fall significantly that will produce significant losses for holders of them, which could encourage more selling.”

6. A major bond-market sell-off would be “traumatic for those who are holding the debt assets and traumatic for most everyone though it eventually reduces the ratios of debt and debt service to incomes. It is also traumatic for capital markets, capitalism, and economies. During this credit/debt collapse people realize that they don’t have as much buying power as they thought and financial and economic conditions worsen.”

Major policy changes

7. “If history and logic are to be a guide, policy makers who are short of money will raise taxes and won’t like these capital movements out of debt assets and into other storehold of wealth assets and other tax domains so they could very well impose prohibitions against capital movements to other assets (e.g. gold, Bitcoin, etc.) and other locations. These tax changes could be more shocking than expected.”

8. “The United States could become perceived as a place that is inhospitable to capitalism and capitalists. Though this specific wealth tax bill [proposed by some Democrats] is unlikely to pass this year the chances of a sizable wealth tax bill passing over the next few years are significant.”

Investment strategy

9. “Because I believe that we are in the late stage of this ‘big debt cycle’…, I believe cash is and will continue to be trash (i.e. have returns that are significantly negative relative to inflation) so it pays to a) borrow cash rather than to hold it as an asset and b) buy higher-returning, non-debt investment assets.”

10. “Rather than get paid less than inflation why not instead buy stuff-any stuff-that will equal inflation or better? We see a lot of investments that we expect to do significantly better than inflation.”

11. “I believe a well-diversified portfolio of non-debt and non-dollar assets along with a short cash position is preferable to a traditional stock/bond mix that is heavily skewed to US dollars.”

12. “I also believe that assets in the mature developed reserve currency countries will underperform the Asian (including Chinese) emerging countries’ markets. I also believe that one should be mindful of tax changes and the possibility of capital controls.”

Read the original article on Business Insider

Billionaire investor Chris Sacca told people not to ignore the $69 million NFT sale this week

chris sacca, lowercase capital, sv100 2015
Chris Sacca.

  • Chris Sacca sees the $69 million NFT sale this week as significant.
  • The venture capitalist said people shouldn’t ignore non-fungible tokens.
  • Sacca highlighted the appeal of collectibles and the value of creators getting paid.
  • See more stories on Insider’s business page.

Some people will have rolled their eyes at the record-breaking $69 million sale of a digital artwork at a Christie’s auction this week. They should pay attention to what the transaction signifies, billionaire investor Chris Sacca tweeted after the news broke.

“No matter how you feel about NFTs, don’t look away from this,” he said. He was referring to non-fungible tokens that serve as virtual certificates of ownership and authenticity for digital items, and are stored securely on a blockchain.

“It’s okay to not get why someone would pay that, and it’s okay to be bummed about the climate impact,” Sacca continued. “But don’t be willfully ignorant about what’s happening.”

Metakovan, the pseudonymous buyer of “Everydays: The First 5000 Days” by artist Beeple, will receive a NFT confirming they’re the new owner of the piece. However, there’s nothing to stop other people downloading and sharing copies of the artwork.

Sacca – an early investor in Uber, Twitter, and Instagram – has praised NFTs and downplayed concerns they’ll be a short-lived fad.

“Very cool and I am a collector at heart,” he said in a Twitter thread last month. “I don’t think it’s a bubble, and I do think it will work.”

However, the Lowercase Capital founder and former “Shark Tank” star said he wouldn’t be abandoning physical memorabilia anytime soon. “I have a feeling this is going to be the tech that finally turns me into the ‘Yeah, but I only listen on vinyl’ guy,” he joked in the thread.

Sacca lauded NFTs as the next frontier for collectibles, and praised them for allowing creators to collect royalties on future resales of their work, in a Forbes interview published this week.

“Collections as a reflection of your identity are powerful,” he said. “And I will never underestimate the beauty of tools that empower creatives to do and get paid for their best shit.”

Billionaire investor and fellow “Shark Tank” star Mark Cuban also touted NFTs in an interview this week, labeling the ability to receive royalties a “game-changer” for digital commerce.

Read the original article on Business Insider

A majority of investors believe the stock market is in a bubble – and many fear a recession, according to an E*Trade survey

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Traders and company executives gather for the Uber Technologies Inc. IPO on the trading floor of the New York Stock Exchange (NYSE) in New York, U.S., May 10, 2019.

  • A new E*Trade Financial survey of 904 active investors revealed that 66% of them believe the stock market is either fully or somewhat in a bubble. An additional 26% said the stock market is “approaching a market bubble.” 
  • The survey also revealed that recession fears linger. 32% of investors listed a recession as their top portfolio risk right now. 
  • This comes as US stock indices fly past records and major investors like Jeremy Grantham are voicing their bubble concerns. 
  • Visit Business Insider’s homepage for more stories.

Most investors believe the stock market is in bubble territory according to a new survey from E*Trade Financial.

Out of 904 active investors who manage at least $10,000 in an online brokerage account, 66% of them think the market is either fully or somewhat in a bubble, according to E*Trade. An additional 26% said the stock market is “approaching a market bubble,” while only 8% said stock valuations are “not close to a market bubble.”

The survey also revealed that recession fears linger. 32% of investors listed a recession as their top portfolio risk right now.

Bubble fears have come into sharper focus as stock valuations soar. Individual stocks like Tesla have ballooned, but the broader market is higher than average as well. The S&P 500 gained 16% in 2020, while the Nasdaq soared 43%. 

British investor Jeremy Grantham said on Tuesday that the stock market is in a “fully-fledged epic bubble,” driven by extreme overvaluations, explosive price increases, frenzied issuance, and “hysterically speculative investor behavior.” 

Read more: Bank of America says the warning signs that stocks are hurtling into bubble territory are growing – and pinpoints 6 that could signal a bear market is beginning

Mohamed El-Erian said on Thursday the market is in a “rational bubble,” propped up by investors confident in the Fed’s continued support.

Despite bubble concerns, bullish sentiment for investors has climbed. 57% of the surveyed investors said they’re “bullish,” which is up 5 percentage points from last quarter’s survey. 

“Investors see that unprecedented fiscal stimulus, the Fed’s easy monetary policy, the vaccine rollout, and relatively healthy earnings are all positives for the market,” said Mike Loewengart, Managing Director of Investment Strategy at E*Trade Financial. “Yet at the same time there is awareness that some, if not all, of these factors may already be priced in, and market corrections are a matter of when, not if.”

The survey was conducted from Jan.1 to Jan. 7, 2021 among an online US sample of 904 self-directed active investors who manage at least $10,000 in an online brokerage account. 

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

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