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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‘Rich Dad Poor Dad’ author Robert Kiyosaki expects an epic market crash, blames the Fed, and loves bitcoin. Here are 16 of his best tweets

Robert Kiyosaki against a green background.
Robert Kiyosaki.

  • “Rich Dad Poor Dad” author Robert Kiyosaki expects a brutal crash across financial markets.
  • The personal-finance guru recommends buying bitcoin, gold, and silver before the downturn.
  • Kiyosaki has also blasted the Federal Reserve and celebrated Reddit traders.
  • See more stories on Insider’s business page.

“Rich Dad Poor Dad” author Robert Kiyosaki has warned of a devastating market crash, slammed the Federal Reserve for devaluing the US dollar, and repeatedly urged investors to buy gold, silver, and bitcoin in tweets over the past 12 months.

The personal-finance guru has also cheered on Reddit traders, analyzed Warren Buffett’s portfolio tweaks, and advised investors to capitalize when asset prices tumble.

Here are Kiyosaki’s 16 best tweets in the past year, lightly edited for clarity:

1. “The best time to prepare for a crash is before the crash. The biggest crash in world history is coming. The good news is the best time to get rich is during a crash. Bad news is the next crash will be a long one. Get more gold, silver, and bitcoin while you can. Take care.” – June 28, 2021.

2. “Biggest bubble in world history getting bigger. Biggest crash in world history coming. Buying more gold and silver. Waiting for bitcoin to drop to $24k. Crashes best time to get rich. Take care.” – June 19, 2021.

3. “Bitcoin crashing. Great news. When price hits $27,000, I may start buying again. A lot will depend upon global-macro environment. Remember the problem is not gold, silver, or bitcoin. Problem are the incompetents in government, Fed & Wall Street. Remember gold was $300 in 2000.” – May 30, 2021.

4. “Fed wants inflation to pay debt with cheaper $. Fed will raise interest rates causing stock, bond, real estate & gold crash. Biggest problem is Boomer retirement. Social Security Medicare & America broke. Fed to print more fake money. Stick with gold, silver, and bitcoin.” – May 17, 2021.

5. “ARE YOU READY? Boom, Bust, Mania, Crash, Depression. Mania in markets today. Prepare for biggest crash, depression in world history. What will Fed do? Print more money? Save more gold, silver, bitcoin.” – April 17, 2021.

6. “After 2008 Subprime Crash, Fed and Treasury printed $700 billion. 2021 Fed and Treasury to print $7 trillion. Biggest crash in history coming. Worst investment is FANG stocks. Anyone not buying gold, silver, bitcoin now is an idiot.” – April 11, 2021.

7. “Anyone who says ‘money doesn’t make you happy’ is a sick puppy who has never been broke. Money is a drug. It makes people happy. Problem is when drug wears off, people get unhappy. Buy gold, silver, bitcoin, real money and stay happy.” – March 21, 2021.

8. “Why do I like gold, silver, bitcoin? LIQUIDITY. People rushing in to buy a house at top of real estate market. When real estate crashes cannot get out. Real estate not liquid. I own 8,000 rental properties. Bought during crashes. In 2021, I prefer liquidity of gold, silver, bitcoin.” – February 20, 2021.

9. “I am excited about Reddit going after the manipulated silver market. I was not in GameStop but I am in silver. If you have seen me on TV ads for Lear Capital, I drank the silver Kool-Aid way back in 1964, the year silver coins became fake silver. God bless Reddit traders.” – January 30, 2021.

10. “GameStop’s BIGGEST LOSERS are old people. I love Reddit kicking Hedge Funds’ butts. Keep it up. Unfortunately the biggest losers are pension funds managed by Hedge Funds. Thank god I don’t need a pension. If you are young, learn to kick Wall St’s butt and never need a pension.” – January 30, 2021.

11. “The EVERYTHING CRASH is coming. Since 1987, world has been in EVERYTHING BUBBLE. Now all crashing. Prices of gold, silver, bitcoin will crash too. US dollar to rise. Be patient. Massive money printing ahead, eventually destroying dollar. Time to buy more gold, silver, bitcoin coming.” – October 28, 2020.

12. “BOOMERS had it easy. Plenty of jobs, low-cost real estate, rising stock market. MILLENNIALS have it hard. 9/11, 2008 real estate crash, now Covid-19. Good news. Millennials are tech savvy. Boomers are not. Bitcoin-Block chain-Digital currencies give Millennials head start into the future.” – September 9, 2020.

13. “BUFFETT buys to SELL. He sells Coca-Cola, Geico Insurance, Gillette razor blades. He is now selling Barrick Gold. His gold costs $1,000 to mine. Sells for $2,000. Barrick has tons of gold to sell in the future. Smart. How much gold, silver, bitcoin do you have to sell in the future?” – August 22, 2020.

14. “WHY BUFFETT is OUT OF BANKS. Banks bankrupt. MAJOR BANKING CRISIS COMING FAST. Fed & Treasury to take over banking system? Fed and Treasury ‘helicopter fake money’ direct to people to avoid mass rioting? Not a time to ‘think about it.’ How much gold, silver, bitcoin do you have?” – August 21, 2020.

15. “WHY I buy gold, silver, bitcoin? Three words: No Counterparty Risk. Stocks, Bonds, Business, Real Estate all have Counterparty Risk. Gold, silver, bitcoin are money. They do not depend on people to be money. I own gold, silver, bitcoin in case I need to run from human insanity.” – August 17, 2020.

16. “SAVERS ARE LOSERS. CASH IS TRASH. TREASURIES ARE THIEVES working for the Fed. GOT THE MESSAGE? Central Banks have an avowed goal of decreasing the value of cash by 2% per year. Please don’t be a loser. Open your mind and get smarter about your money. Got gold, silver & bitcoin?” – August 12, 2020.

Read the original article on Business Insider

‘Rich Dad Poor Dad’ author Robert Kiyosaki has warned of an epic market crash, blasted the Fed, and trumpeted bitcoin. Here are 16 of his best tweets

"Rich Dad Poor Dad" author Robert Kiyosaki
Robert Kiyosaki.

  • “Rich Dad Poor Dad” author Robert Kiyosaki expects a brutal crash across financial markets.
  • The personal-finance guru recommends buying bitcoin, gold, and silver before the downturn.
  • Kiyosaki has also blasted the Federal Reserve and celebrated Reddit traders.
  • See more stories on Insider’s business page.

“Rich Dad Poor Dad” author Robert Kiyosaki has warned of a devastating market crash, slammed the Federal Reserve for devaluing the US dollar, and repeatedly urged investors to buy gold, silver, and bitcoin in tweets over the past 12 months.

The personal-finance guru has also cheered on Reddit traders, analyzed Warren Buffett’s portfolio tweaks, and advised investors to capitalize when asset prices tumble.

Here are Kiyosaki’s 16 best tweets in the past year, lightly edited for clarity:

1. “The best time to prepare for a crash is before the crash. The biggest crash in world history is coming. The good news is the best time to get rich is during a crash. Bad news is the next crash will be a long one. Get more gold, silver, and bitcoin while you can. Take care.” – June 28, 2021.

2. “Biggest bubble in world history getting bigger. Biggest crash in world history coming. Buying more gold and silver. Waiting for bitcoin to drop to $24k. Crashes best time to get rich. Take care.” – June 19, 2021.

3. “Bitcoin crashing. Great news. When price hits $27,000, I may start buying again. A lot will depend upon global-macro environment. Remember the problem is not gold, silver, or bitcoin. Problem are the incompetents in government, Fed & Wall Street. Remember gold was $300 in 2000.” – May 30, 2021.

4. “Fed wants inflation to pay debt with cheaper $. Fed will raise interest rates causing stock, bond, real estate & gold crash. Biggest problem is Boomer retirement. Social Security Medicare & America broke. Fed to print more fake money. Stick with gold, silver, and bitcoin.” – May 17, 2021.

5. “ARE YOU READY? Boom, Bust, Mania, Crash, Depression. Mania in markets today. Prepare for biggest crash, depression in world history. What will Fed do? Print more money? Save more gold, silver, bitcoin.” – April 17, 2021.

6. “After 2008 Subprime Crash, Fed and Treasury printed $700 billion. 2021 Fed and Treasury to print $7 trillion. Biggest crash in history coming. Worst investment is FANG stocks. Anyone not buying gold, silver, bitcoin now is an idiot.” – April 11, 2021.

7. “Anyone who says ‘money doesn’t make you happy’ is a sick puppy who has never been broke. Money is a drug. It makes people happy. Problem is when drug wears off, people get unhappy. Buy gold, silver, bitcoin, real money and stay happy.” – March 21, 2021.

8. “Why do I like gold, silver, bitcoin? LIQUIDITY. People rushing in to buy a house at top of real estate market. When real estate crashes cannot get out. Real estate not liquid. I own 8,000 rental properties. Bought during crashes. In 2021, I prefer liquidity of gold, silver, bitcoin.” – February 20, 2021.

9. “I am excited about Reddit going after the manipulated silver market. I was not in GameStop but I am in silver. If you have seen me on TV ads for Lear Capital, I drank the silver Kool-Aid way back in 1964, the year silver coins became fake silver. God bless Reddit traders.” – January 30, 2021.

10. “GameStop’s BIGGEST LOSERS are old people. I love Reddit kicking Hedge Funds’ butts. Keep it up. Unfortunately the biggest losers are pension funds managed by Hedge Funds. Thank god I don’t need a pension. If you are young, learn to kick Wall St’s butt and never need a pension.” – January 30, 2021.

11. “The EVERYTHING CRASH is coming. Since 1987, world has been in EVERYTHING BUBBLE. Now all crashing. Prices of gold, silver, bitcoin will crash too. US dollar to rise. Be patient. Massive money printing ahead, eventually destroying dollar. Time to buy more gold, silver, bitcoin coming.” – October 28, 2020.

12. “BOOMERS had it easy. Plenty of jobs, low-cost real estate, rising stock market. MILLENNIALS have it hard. 9/11, 2008 real estate crash, now Covid-19. Good news. Millennials are tech savvy. Boomers are not. Bitcoin-Block chain-Digital currencies give Millennials head start into the future.” – September 9, 2020.

13. “BUFFETT buys to SELL. He sells Coca-Cola, Geico Insurance, Gillette razor blades. He is now selling Barrick Gold. His gold costs $1,000 to mine. Sells for $2,000. Barrick has tons of gold to sell in the future. Smart. How much gold, silver, bitcoin do you have to sell in the future?” – August 22, 2020.

14. “WHY BUFFETT is OUT OF BANKS. Banks bankrupt. MAJOR BANKING CRISIS COMING FAST. Fed & Treasury to take over banking system? Fed and Treasury ‘helicopter fake money’ direct to people to avoid mass rioting? Not a time to ‘think about it.’ How much gold, silver, bitcoin do you have?” – August 21, 2020.

15. “WHY I buy gold, silver, bitcoin? Three words: No Counterparty Risk. Stocks, Bonds, Business, Real Estate all have Counterparty Risk. Gold, silver, bitcoin are money. They do not depend on people to be money. I own gold, silver, bitcoin in case I need to run from human insanity.” – August 17, 2020.

16. “SAVERS ARE LOSERS. CASH IS TRASH. TREASURIES ARE THIEVES working for the Fed. GOT THE MESSAGE? Central Banks have an avowed goal of decreasing the value of cash by 2% per year. Please don’t be a loser. Open your mind and get smarter about your money. Got gold, silver & bitcoin?” – August 12, 2020.

Read the original article on Business Insider

‘Rich Dad Poor Dad’ author Robert Kiyosaki says an epic market crash is coming – and tells investors to buy bitcoin, gold, and silver

Robert Kiyosaki.
Robert Kiyosaki, the author of “Rich Dad Poor Dad.”

  • The “Rich Dad Poor Dad” author Robert Kiyosaki expects a historic crash across financial markets.
  • Kiyosaki advised investors to buy gold, silver, and bitcoin ahead of a downturn.
  • The personal-finance guru cheered on Robinhood and Reddit traders earlier this year.
  • See more stories on Insider’s business page.

Financial markets are barreling toward a brutal downturn, and investors should bank on cryptocurrencies and precious metals to weather the fallout, Robert Kiyosaki, the author of “Rich Dad Poor Dad,” tweeted on Monday.

“The biggest crash in world history is coming,” he said, adding that sell-offs create buying opportunities but that markets wouldn’t recover for a long time. “Get more gold, silver, and bitcoin while you can,” he said.

Kiyosaki’s bestselling book urges people to understand their finances, not to rely on others for money, and to accumulate wealth by investing in businesses, real estate, and other assets. The founder of Rich Global and Rich Dad Company has been sounding the alarm on the market for several months.

“Biggest bubble in world history getting bigger,” he tweeted last week. “Fed will raise interest rates causing stock, bond, real estate & gold crash,” he tweeted in mid-May.

Kiyosaki recommended holding crypto and metals, saying he expected them to retain more of their value and be more easily converted into cash than other assets during a downturn.

“Why I like gold, silver, bitcoin? LIQUIDITY,” he tweeted in February. “People rushing in to buy a house at top of real estate market. When real estate crashes cannot get out.”

Notably, the personal-finance guru celebrated the retail investors who executed short squeezes on GameStop, AMC, and other assets earlier this year. “Robin Hood and Reddit traders kicking the butts of institutional investors,” he tweeted in late January. “Keep it up. Love it.”

“I am excited about Reddit going after the manipulated silver market,” he tweeted a few days later, adding, “God bless Reddit traders.”

Kiyosaki is far from the only high-profile commentator to predict a crash. Leading investors such as Jeremy Grantham, Leon Cooperman, Stanley Druckenmiller, and Michael Burry of “The Big Short” fame have all said the boom will end painfully.

Read the original article on Business Insider

‘Rich Dad, Poor Dad’ author Robert Kiyosaki warns an epic market crash is coming – and tells investors to buy bitcoin, gold, and silver

Robert Kiyosaki
“Rich Dad Poor Dad” author Robert Kiyosaki.

  • “Rich Dad, Poor Dad” author Robert Kiyosaki expects a historic crash across financial markets.
  • Kiyosaki advises investors to buy gold, silver, and bitcoin ahead of the downturn.
  • The personal-finance guru cheered on Robinhood and Reddit traders earlier this year.
  • See more stories on Insider’s business page.

Financial markets are barreling towards a brutal downturn, and investors should bank on cryptocurrencies and precious metals to weather the fallout, “Rich Dad Poor Dad” author Robert Kiyosaki tweeted on Monday.

“The biggest crash in world history is coming,” he said, adding that sell-offs create buying opportunities but markets won’t recover for a long time. “Get more gold, silver, and bitcoin while you can.”

Kiyosaki’s best-selling book urges people to understand their finances, not rely on others for money, and accumulate wealth by investing in businesses, real estate, and other assets. The founder of Rich Global and Rich Dad Company has been sounding the alarm on the current market for several months.

“Biggest bubble in world history getting bigger,” he tweeted last week. “Fed will raise interest rates causing stock, bond, real estate & gold to crash,” he tweeted in mid-May.

Kiyosaki recommends holding crypto and metals because he expects them to retain more of their value, and be more easily converted into cash, than other assets during a downturn.

“Why I like gold, silver, bitcoin? LIQUIDITY,” he tweeted in February. “People rushing in to buy a house at top of real estate market. When real estate crashes cannot get out.”

Notably, the personal-finance guru celebrated the retail investors who executed short squeezes on GameStop, AMC, and other assets earlier this year. “Robinhood and Reddit traders kicking the butts of institutional investors,” he tweeted in late January. “Keep it up. Love it.”

“I am excited about Reddit going after the manipulated silver market,” he tweeted a few days later. “God bless Reddit traders.”

Kiyosaki is far from the only high-profile commentator to predict a crash. Leading investors such as Jeremy Grantham, Leon Cooperman, Stanley Druckenmiller, and Michael Burry of “The Big Short” fame have all warned the current boom will end painfully.

Read the original article on Business Insider

‘Big Short’ investor Michael Burry warned against buying meme stocks and crypto and predicted the ‘mother of all crashes’ during his brief Twitter return. Here are the 10 best tweets.

Dr. Michael Burry
Michael Burry.

  • Michael Burry returned to Twitter for eight days after deleting his account in April.
  • “The Big Short” investor rang the alarm on meme stocks, crypto, inflation, and the Federal Reserve.
  • Burry also warned of an unprecedented market bubble and predicted the “mother of all crashes.”
  • See more stories on Insider’s business page.

Michael Burry returned to Twitter for eight days this month after deleting his account in early April. The investor of “The Big Short” fame issued dire warnings about meme stocks, cryptocurrencies, inflation, a wrongheaded Federal Reserve, a sprawling market bubble, and a historic crash before taking down his profile again this week.

The Scion Asset Management boss, who famously predicted the US housing-market collapse that precipitated the global financial crisis, has pointed to Tesla, Robinhood, dogecoin, GameStop, and SPACs as demonstrating signs of rampant speculation and dangerous excess in recent months.

Here are Burry’s 10 best tweets from his brief Twitter homecoming:

1. “People always ask me what is going on in the markets. It is simple. Greatest Speculative Bubble of All Time in All Things. By two orders of magnitude. #FlyingPigs360.”

2. “All hype/speculation is doing is drawing in retail before the mother of all crashes. #FOMO Parabolas don’t resolve sideways; When crypto falls from trillions, or meme stocks fall from tens of billions, #MainStreet losses will approach the size of countries. History ain’t changed.”

3. “The problem with #Crypto, as in most things, is the leverage. If you don’t know how much leverage is in crypto, you don’t know anything about crypto, no matter how much else you think you know.”

4. “Easiest riddle you’ll ever get from me. What do Troy Polamalu and #Bitcoin have in common?” – “Neck not broken yet on either,” he explained in a follow-up tweet about the former American football player with an enormous head of hair, and the leading cryptocurrency.

5. “Knowing saves half the battle. Got it? It’s not hard. Analyze, think independently, be informed, find the data, and you’ll know a lot that no one else does.”

6. “Some stocks, funds cannot own, for now. Maybe 1x book, 1x sales. Growing fast. But, pink sheets, federal laws, clients in certain jurisdictions… some cases there is a path to funds gaining the ability to own such. Knowing saves half the battle, #capisce?” – underscoring the opportunity for investors to buy stocks now that institutions might own in the future.

7. “Re: RMBS CDS, ancient history, but… because my investors revolted, I was completely out of the trade before any bailouts. And I hated the bailouts too! AIG should have been allowed to fail, and @GoldmanSachs with it. Today’s narratives would be very different.” – commenting on the government bailouts of major banks and insurers during the financial crisis.

8. “Everywhere and anywhere you see #shortages – things, people, places, experiences, and services – you know the price is just not high enough, yet.” – suggesting that a national ammo shortage is evidence of upward pressure on prices.

9. “Micro-hoarding. Millions and millions micro-hoarding. The secret to longevity… of the inflationary mindset. And since #PlungeProtectionTeam mentality infiltrated the Greenspan #Fed after the ’87 crash, it has compounded and compounded. And become today’s misguided monster.” – accusing the Federal Reserve of fueling inflation by focusing too much on shoring up financial markets.

10. “Who could’ve seen this coming?” – Commenting on a news report that supply-chain disruptions, labor shortages, and a post-pandemic demand surge are stoking inflation. Burry flagged the risk of inflation spiking after the economy reopens as early as April 2020.

Read the original article on Business Insider

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

GettyImages 1158933047
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.

Read the original article on Business Insider

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.

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Billionaire ‘Bond King’ Jeff Gundlach said stocks will crash, predicted a weaker dollar, and questioned bitcoin in a recent interview. Here are the 10 best quotes.

gundlach
2011 Jeffrey Gundlach co-founder and Chief Executive Officer and Chief Investment Officer of DoubleLine speaks at the 16th annual Sohn Investment Conference in New York May 25, 2011.

  • Jeff Gundlach, the billionaire investor known as the “Bond King,” predicted in a RealVision interview in October that stocks would crash in less than 18 months.
  • The DoubleLine Capital CEO also said the US dollar would dive in the long run, argued that tech stocks like Apple and Amazon were the only US equities worth owning, and questioned bitcoin, welfare, and Chipotle’s valuation.
  • Here are Gundlach’s 10 best quotes from the discussion.
  • Visit Business Insider’s homepage for more stories.

In a RealVision interview filmed and released in early October, the billionaire “Bond King” Jeff Gundlach said stocks would crash within 18 months, predicted that the US dollar would tumble in the long run, and voiced his doubts about bitcoin.

Gundlach, the founder and CEO of DoubleLine Capital, also called out Chipotle’s valuation, criticized welfare, and argued that the only US equities that made sense to own right now were the largest technology stocks.

Here are Gundlach’s 10 best quotes from the conversation, condensed and lightly edited for clarity:

1. “Valuation makes absolutely zero difference when you’re in a true, brutal bear market. You just go to prices that you just can’t believe.” – on the tricky 1994 bond market and how it prepared him for the financial crisis.

2. “I’m actually long the dollar now, even though I don’t believe in it at all. It’s a good investment for the next five years.” Gundlach added that he was “very, very negative long term on the US dollar” because of the ballooning budget deficit and the prospect of higher inflation, and that he sees betting against it as “the big trade for the years ahead.”

3. “If I want it to invest for my great-great-great-great-grandchildren, I’m positive that certain real-estate investments and certain resource investments would be obvious winners. Who cares about your great-great-great-grandchildren?” – on the need for fund managers to balance the lower risks of a longer investment time frame with investors’ impatience.

Read more: GOLDMAN SACHS: Buy these 15 stocks set to deliver the strongest possible profit growth and subsequent returns through year-end

4. “If you want to own US stocks, you should own those six knowing that you’re going to take a bloodbath if you overstay your welcome … You’ve just got to have your finger on the exit button or pretty close by, but I think that’s your only chance of making money.” – advising people that they should own Apple, Amazon, and the other “big tech” stocks that have driven the market in recent years.

5. “The one that just blows my mind is Chipotle. I just can’t understand why the stock has tripled over the last six months. It just baffles me. Isn’t the price-to-earnings ratio like 150 or something? That’s a lot of tacos.”

6. “I do think that within 18 months it’s going to crack pretty hard. When the next big meltdown happens, I think the US is going to be the worst-performing market.” – predicting a stock-market crash that would be exacerbated by a weakening dollar.

Read more: ‘The largest financial crisis in history’: A 47-year market vet says the COVID-19 crash was merely a ‘fake-out sell-off’ – and warns of an 80% stock plunge fraught with bank failures and bankruptcies

7. “It’s comical how people talk about modern monetary theory or universal basic income as some wacky idea. We’ve been doing it since the 1960s. What do you think welfare is? It’s universal basic income, just for a certain subset of the population. It hasn’t exactly solved the problems. In fact, in my view, it’s made it much worse.”

8. “I don’t believe in bitcoin. I think that it’s a lie. I think that it’s very tracked, traceable. I don’t think it’s anonymous.” Gundlach later added that he was “not at all a bitcoin hater.”

9. “I prefer things that I can put in the trunk of my car. I prefer my Mondrian on the wall to a digital entry that has the same value.” – on his preference for physical investments

10. “It will be quite a pleasant experience to not be in the car on the first wheel of the roller coaster that’s coming.” – on his cautious approach to investing in anticipation of a crash

Read more: Bank of America lays out its scenario for how the next big top in stocks will form – and pinpoints the trigger that could cause a meltdown shortly after

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