Michael Burry on Tuesday warned of the biggest market bubble in history, suggesting that his concerns about rampant speculation only grew during his 10-week hiatus from Twitter.
“People always ask me what is going on in the markets,” the investor tweeted. “It is simple. Greatest Speculative Bubble of All Time in All Things. By two orders of magnitude. #FlyingPigs360.”
The hashtag was likely a reference to a famous saying in investing: “Bulls make money, bears make money, but pigs get slaughtered.” Burry has repeatedly told investors that they’re being too greedy, speculating wildly, shouldering too much risk, and chasing unrealistic returns.
Burry is best known for his billion-dollar bet against the US housing bubble in the mid-2000s, which was immortalized in the book and the movie “The Big Short.” He also helped lay the groundwork for GameStop’s comeback this year, as he bought a stake in the video-game retailer in 2019 and wrote several letters to its board.
The investor, who has complained many times about his warnings being ignored, has “Cassandra” as his display name on Twitter, a reference to the priestess from Greek mythology who was cursed by the gods to share true prophecies but never to be believed.
Burry’s latest tweet echoed his other cautions. For example, he’s compared the hype around bitcoin, electric vehicles, and meme stocks to the dot-com and housing bubbles and said earlier this year that the stock market was “dancing on a knife’s edge.”
Legendary investor Jeremy Grantham said US stocks are hugely overpriced, predicted copper prices should shoot higher in the coming years, and that he had an “overprivileged” lockdown in an interview at the Morningstar Investment Conference Australia this week.
The cofounder of asset management firm GMO also ripped into the major oil companies, saying they’re too cynical to engage with. And the 82-year-old said the SPAC boom and the Nasdaq had probably peaked.
Here are the 14 best quotes from the interview.
On the investing landscape
1. “The developed world is merely overpriced, no big deal on its own, but the US is heroically overpriced, and emerging markets is actually fairly cheap… I have complete confidence that if you bought the intersection, cheap emerging market stocks, that you would get a perfectly handsome 10- or 20-year return. And I am pretty darn confident that you will not get a handsome ten-year return from say the S&P 500 or Nasdaq.”
2. “[The] Nasdaq has, by the way, peaked quite a long time ago, two months ago…. This time, my guess is the super SPACs peaked in January, the Nasdaq peaked in February. And maybe in a few months, the termites will get to the rest of the market.”
3. “The super crazies are really anything to do with electrification. EVs, for sure, Tesla is the king of that group, [and] they’re down 30%. The SPAC index is down 30%, the last 10 SPACs having announced a deal are now [trading at] less than the $10 that they do these deals at.”
4. “There is no way copper will not rise hugely from here because of the electrification of everything. And that goes for cobalt, that goes for lithium. And all of the metals except iron and aluminum are really scarce… You have to be reconciled in the long run for a different world of commodity prices.”
On dangers for markets
5. “The higher an asset price is, the lower the return. So having high-priced assets is great for retirees, old folks like me selling off my assets. But for everybody else, it means you compound your wealth more slowly… So I welcome lower asset prices, which I’m confident will come.”
6. “It won’t take bad news. It won’t take a thoroughly bad economy to start bringing this market down. It will take a perfectly good economy and perfectly optimistic outlook, but a little less than it used to be a week ago, a month ago.” – Grantham also spoke of “pessimism termites” that would start to eat away at investor confidence.
7. “You look around and you find that real estate is suddenly pretty bubbly in almost every interesting market in the world… 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. Eventually, there’ll be a day of reckoning.”
8. “Don’t pull a Japan. Japan had the biggest bubble in history in land and real estate, bigger than the South Sea Bubble in my opinion. It also had the biggest equity bubble of any advanced country. [Now] 32 years later their land is not back to where it was in 1989 and their stock market is not back in nominal dollars to where it was in 1989. And that’s a perfect example, as the higher you go, the longer and greater the fall.”
9. “We had a totally overprivileged existence. We’re down in beautiful countryside with 50 acres of our own of woodland… And I did quite a lot more research than normal because I wasn’t wasting my time on airplanes. So my carbon footprint was magnificent, and I was reduced to worrying about rather small things like amortizing my tie supply. If I could wear three at a time, I would.”
On the oil companies
10. “The oil industry ran a deliberate campaign of obfuscation, political propaganda, to deliberately mislead the world… That should be criminal. It certainly has had a very damaging effect… It’s cost the world perhaps as much as 10 years of progress on climate change action and government support and sensible regulation.”
11. “I think engagement for the routine concerns [with companies over climate change] is the way to go… But with oil companies, I think they’re simply too cynical and too clever for engagement to count.”
On value investing and venture capital
12. “[Value investing] has had a brutal 11 years. It was the worst 10 years in history for value versus growth. And then last year was by far the worst single year. So you had the worst decade followed by the worst single year… We’ve had a lot of problems over the last 11 years.”
13. “American capitalism seems to me past its prime, a little fat and happy, not aggressive enough. There’s only half the number of people working for firms [that are] one and two years old than there were in 1975. So we’re losing some of our dynamism.”
14. “But there is one thing where the US is still exceptional and that is venture capital. And venture capital is really attracting the best people these days. They don’t go to Goldman Sachs to write algorithms. They go into venture capital or to start a new firm, and they should.”
Activist investor Carl Icahn revealed he’s mulling a billion-dollar cryptocurrency bet, disclosed a new stake in Allstate, and warned excessive federal spending will eventually tank the stock market in a pair of Bloomberginterviews this week.
The billionaire boss of Icahn Enterprises also defended Reddit and Robinhood, admitted he missed a trick by selling Hertz last year, and called for tougher financial regulations to protect investors.
Here are Icahn’s 10 best quotes from the interviews, lightly edited and condensed for clarity:
1. “It takes a great deal of patience, permanent capital, and negotiating skill – as well as a very thick skin – to be truly a successful activist. Perhaps that’s why it is so lucrative and the best investing model that exists today.”
2. “I’m not necessarily looking at what to buy at this time. I’m just looking at the whole business and how I might get involved in it with Icahn Enterprises in a relatively big way. I do think it’s here to stay in one form or another. – disclosing that he might plow $1 billion or $1.5 billion into cryptocurrencies.
3. “The criticism is a little wrong-headed. ‘What’s the value of a cryptocurrency?’ Well, what’s the value of a dollar? The only value of the dollar is you can use it to pay taxes.”
4. “We do own Allstate, it’s a good example of a company that was undervalued. We bought it around six months ago when it was in the $90s. We never even had to talk to the company because its bosses did what they said there were gonna do. – Allstate, which has been revamping its business to reduce costs and interact directly with customers, boasts a stock price north of $135 today.
5. “We’re pumping a lot of money into this economy. Obviously you’re going to get inflation, which will eventually cause higher interest rates and a major correction in the market. But when it occurs and how severe it will be is a question that is impossible to answer at this time.”
6. “Is it gonna go up and how long is it gonna go up for? I don’t think it’s gonna end tomorrow, I don’t think you should go out and sell your stocks tomorrow. But sooner or later that party’s gonna have to be over.” – warning the boom in asset prices can’t continue indefinitely.
7. “I sure missed the turn there as far as Hertz is concerned. What the heck, you’ve gotta make mistakes in this business, there’s nobody that doesn’t. I congratulate those guys that held it.” – on his decision to sell his Hertz shares at a loss last year, and the news that the bankrupt car-rental company’s shareholders will receive a payout.
8. “I don’t think Reddit and Robinhood and all of those guys are necessarily bad. They serve a purpose, money is funneling back into companies. Some of these companies might be okay, but a number of them, the risk-reward ratio is absurd.” –Icahn described some meme stocks as “ridiculously priced” and warned there will be “a price to pay” in the form of higher inflation and future losses.
9. “Some of these egregious investments, who pays for them? In the end the small individual’s gonna pay. We’re going to excess in a lot of things.” – Icahn highlighted shopping-mall debt and GameStop as examples.
10. “We should do what we can to control Wall Street and this excess buying. We should be doing something to control fund management, we should be doing more corporate governance. If you did all that, a lot of these middle-class people wouldn’t lose all the money they’ve invested when this thing hits.” – calling for stricter government regulation of companies and markets.
Billionaire investor Bill Ackman hopes to close his mega-SPAC deal in the next couple of weeks, continues to hedge against inflation and a potential market downturn, and swapped out Starbucks for Domino’s Pizza in search of higher returns, he said on an earnings call this week.
Ackman’s “blank-check” company, Pershing Square Tontine Holdings, floated last summer with the goal of spending about $5 billion for a minority stake in a private company and taking it public. The investor revealed earlier this month that he’s been working to buy a piece of an “iconic, phenomenal, great business” since early November, and was close to sealing the deal.
“We’ve done our homework, we like the business, we love the management team, and we are working to complete a transaction,” Ackman said this week. “Hopefully within a couple of weeks or so.”
If the deal falls through, Ackman and his team will turn their attention to a second target, he added.
Ackman, who made a $2.6 billion profit by hedging the pandemic last spring, also weighed in on growing inflation fears and the steps he’s taken to protect his portfolio. He pointed to multiple government-stimulus packages over the past year, and the prospect of pent-up demand being released and savings being spent as the economy reopens, as drivers of higher prices that could spur the Federal Reserve to hike interest rates. That represents a “risk for markets generally,” he said.
The uncertain backdrop prompted his fund, Pershing Square Capital Management, to spend $157 million on interest-rate “swaptions” between December and early February. The position’s value – which ballooned to almost $500 million by the end of March – is still up about 2.5 times, Ackman said.
The Pershing chief also elaborated on why his fund sold a 1% stake in Starbucks and snapped up more than 5% of Domino’s – a position valued at about $750 million as of March 31 and $860 million today. The move was driven by price and potential upside, he said.
“We’re always willing to trade an existing holding at a kind of full valuation for a business of similar quality at a much more attractive valuation,” Ackman said. “That was the thinking behind the switch.”
The investor and his team determined that Starbucks was likely to generate returns in the low double digits, while Domino’s promises long-term returns in the high teens or low 20s, he added.
Jeffrey Gundlach underlined the risks of excessive federal stimulus in a Yahoo Finance interview this week. He also warned sustained inflation could hammer stock prices, and suggested bitcoin’s recent slump might indicate that market speculation is on the decline.
The billionaire founder and CEO of DoubleLine Capital, whose nickname is the “bond king,” said multiple rounds of stimulus checks have distorted several parts of the economy. They have fueled the sharp rise in US house prices over the past year, he said, and discouraged some recipients from working because they’re “making more money sitting at home watching Netflix.”
“One of the dangers that we’ve opened the door to is these stimulus checks are starting to feel like they might not go away,” Gundlach added.
The DoubleLine boss was caught off-guard by inflation data this week that showed consumer prices jumped the most in 11 years last month. His firm’s models were predicting higher inflation in another month or two, and he still expects the peak to be in July, he said.
“If we keep going higher from there, then I think people are going to be seriously worried,” he continued, explaining that it would rule out a temporary increase in prices due to the economy reopening.
Moreover, sustained inflation could pressure the Federal Reserve into raising interest rates and pumping less liquidity into markets. “That’s gonna be problematic for the valuation of the stock market,” he said.
“Gamestop, all these things, a lot of people are just playing with this funny money,” he said. “They feel like they’re playing with the house’s money, so it actually does resemble a casino to them, psychologically.”
Gundlach, who was bullish on bitcoin last year, compared it to the pre-revenue tech startups that went public in the months before the dot-com crash. “Every era of really highly valued markets, after they’ve run a lot, has some sort of a poster child,” he said. “Here I think it’s really these cryptos.”
The investor suggested bitcoin’s recent correction might indicate the rampant speculation in markets has peaked and may now be easing. “Maybe it’s only temporary, but when you’re looking at a speculative fervor, I look for the poster child to roll over last,” he said.
Stanley Druckenmiller warned the Federal Reserve’s stimulus efforts are inflating a massive asset bubble, and endangering the dollar’s status as the world’s reserve currency, in a CNBC interview this week.
Here are Druckenmiller’s 10 best quotes from the interview, lightly edited and condensed for clarity:
1. “A monkey could make money in this market.” – commenting on how a wide range of assets have surged over the past year as the Federal Reserve has pumped liquidity into financial markets.
2. “I have no doubt that we are in a raging mania in all assets. I also have no doubt that I don’t have a clue when that’s gonna end. I knew we were in a raging mania in ’99, but it kept going on, and if you had shorted the tech stocks in mid ’99, you were out of business by the end of the year.”
3. “I can’t find any period in history where monetary and fiscal policy were this out of step with the economic circumstances. We’re still acting like we’re in a black hole, when in fact the economy’s accelerating.”
4. “I will be surprised if we’re not out of the stock market by the end of the year, just because the bubbles can’t last that long. I really have an open mind and right now, treacherously, we’re still playing the game to some extent.”
5. “I’m worried for the first time that within 15 years we lose reserve currency status and all the unbelievable benefits that accrued from it.” – warning that aggressive monetary and fiscal policy will make the national debt balloon, damaging the dollar’s prospects.
6. “I really don’t understand why 1.6% inflation with a mandate of price stability is a national tragedy. If the Fed wanna do all this and risk our reserve currency status, risk an asset bubble blowing up, so be it. But I think we oughta at least have a conversation about it.”
7. “The elephant in the room is inflation. It may become so obvious that the Fed has to move, and the longer they wait to move, the bigger the bubble will be and the bigger the reaction.”
8. “Five or six years ago, I said that crypto was a solution in search of a problem. That’s why I didn’t play the first wave of crypto – we already have the dollar, so what do we need crypto for? Well, the problem has clearly been identified, it’s Jerome Powell and the rest of the world’s central bankers.”
9. “The most likely replacement for the dollar would be some kind of crypto-derived ledger system invented by some kids from MIT or Stanford or some other engineering school that doesn’t exist yet.”
10. “It’s going to be very hard to unseat bitcoin as a store of value, because it’s got a 14-year brand, and there’s a finite supply. Ethereum has the lead in terms of smart contracts, in terms of commerce. But Facebook was not the first social network, it was number 11, and Yahoo may have invented the search engine, but we all know what happened with Google versus Yahoo. It’s just not probable in my mind that Ethereum is gonna be the ultimate winner.”
Charlie Munger – Berkshire’s 97-year-old vice-chairman – also defended “big tech” companies from claims they need to be broken up, and warned that unchecked federal spending will ultimately end in disaster.
Here are Munger’s 16 best quotes from the meeting, lightly edited and condensed for clarity:
1. “It’s crazy to think anybody is going to be smart enough to hug the money and then just come out on the bottom tick in some crazy crisis and spend it all. That’s too tough a standard. Anybody who expects that of Berkshire is out of his mind.” – dismissing the idea that Berkshire could have deployed a large chunk of its cash pile when markets tanked last spring.
3. “I would not like to see our present giants brought down to some low level based on any competitive reasoning. I don’t think they’re doing a lot of harm to any competitor. I think they’re a credit to the market, credit to our civilization.” – arguing against breaking up the “big tech” companies.
4. “There’s a good chance that this extreme conduct is more feasible than everybody thought. But I do know if you keep just doing it without any limit, that it will end in disaster.” – suggesting that loose monetary and fiscal policy may be more sustainable than feared, but it can’t go on forever.
5. “It’s a moral failing to some extent. The easy money made by things like SPACs and derivatives and so on – you push that to excess, it causes horrible problems with civilization. It reflects no credit on the people who are doing it and no credit on the regulators and monitors that will allow it. It’s not just stupid, it’s shameful.”
6. “I don’t mind the poor fish that gamble. I don’t like the professionals that take the suckers.” – emphasizing that he’s far less concerned about amateur investors speculating than the trading apps taking advantage of them.
7. “We’re used to shooting fish in a barrel, but that’s gotten harder.” – bemoaning the lack of bargain stocks on the market.
8. “Bernie Sanders has basically won. With everything boomed off so high and interest rates so low, the millennial generation is going to have a hell of a time getting rich compared to our generation. The difference between the rich and the poor in the generation that’s rising is going to be a lot less. So Bernie has won. He did it by accident, but he won.”
9. “If you’re repurchasing stock just to pull it higher, it’s deeply immoral. But if you’re repurchasing stock because it’s a fair thing to do in the interest of your existing shareholders, it’s a highly moral act. And the people who are criticizing it are bonkers.”
10. “It’s probably a mistake to be anti-capitalist. Capitalism is what raises GDP for everybody. I’m a little wary of just constantly being mad at people because they have a little more money.”
11. “It is stupid for states to drive out their wealthiest citizens. The old people that don’t commit crimes, that donate to the local charity – who in the hell in the right mind would drive out the rich people? Florida and places like that are very shrewd, and places like California are being very stupid. It’s contrary to the interest of the state.”
12. “I hate the bitcoin success. I don’t welcome a currency that’s so useful to kidnappers and extortionists and so forth. Nor do I like just shuffling out a few extra billions and billions and billions of dollars to somebody who just invented a new financial product out of thin air. I should say modestly that I think the whole development is disgusting and contrary to the interest of civilization. I’ll leave the criticism to others.”
13. “Oh, Warren, even though you shot and missed, you were at least shooting at an elephant. The cost of health care in Singapore is 20% of what it is in the United States, and their medical system works better. So you were shooting at a huge elephant. But as you found out, it’s very hard to for people to get very enthusiastic about losing part of their income.” – commenting on Haven, Berkshire’s joint venture with Amazon and JPMorgan to lower employee-healthcare costs and improve care.
14. “It’s just godawful that something like that would draw investment from civilized men and decent citizens. It’s deeply wrong. We don’t want to make our money selling things that are bad for people.” – criticizing Robinhood and other trading apps for encouraging amateur investors to gamble on stocks and dabble with options trading.
15. “The states have replaced the Mafia as the proprietor in the numbers game. They pushed the Mafia aside and said, ‘That’s our business, not yours.’ It doesn’t make me proud of my government.” – comparing state lotteries to the “Italian lottery” run by the mob.
16. “If you’re not a little confused by what’s going on, you don’t understand it. We’re in uncharted territory.” – arguing that nobody knows the medium-term effects of stimulus checks, near-zero interest rates, and aggressive federal spending on the US stock market and economy.
Stock valuations today are nowhere near levels seen in the late 1990s dot-com era, said Deutsche Bank’s Binky Chadha.
In a Tuesday webinar, the bank’s chief US equity strategist said that stock valuations are “unambiguously high” on multiple metrics, but levels seem justified given where we are in the recovery cycle.
Chadha said his clients ask whether equities are in a bubble almost “every day.” Investor fears that the stock market is in bubble have grown as the S&P 500 continues to make new records, though many strategists have tried to quell those concerns.
Goldman Sachs recently conducted a study that looked back at over 300 years of market data and concluded that while some characteristics of a stock market bubble are indeed present, a full-fledged bubble has not yet formed, and high stock prices are justified by historically low interest rates.
According to Chadha, equity valuations are always high at this point in a recovery cycle, and earnings have been very strong. During the dot-com era, measurements of overvaluation were much higher relative to now, and the overvaluation occurred much later in the cycle.
He also explained that valuations are high, not because of over exuberance but because of the involvement of retail investors during the pandemic. But as the COVID-19 crisis begins to wind down, that level of retail participation should also come down.
The famed investor and Berkshire CEO said that SPACs, also known as blank-check companies, were taking advantage of amateur investors and making unrealistic promises. “You stick a famous name on it and you can sell almost anything,” he said.
Buffett’s right-hand man, Charlie Munger, said that the proliferation of SPACs was a “moral failing” to an extent.
“The easy money made by SPACs and derivatives and so on – you push that to excess, it causes horrible problems for the civilization.”
Buffett bemoaned the fact that Wall Street profits most when markets are rife with speculation.
“You have this incredible, huge asset to humanity but it really makes its money when people are doing stupid things,” he said.
“More people are entering the casino than are leaving everyday,” he said. “It creates its own reality for a while, and nobody tells you when the clock will strike 12 and it all turns to pumpkins and mice.”
Buffett also shared his thoughts on Robinhood, which many amateur investors and day traders have flocked to in recent months.
“It’s become a very significant part of the casino group that has joined to the stock market” over the past 12 to 18 months, Buffett said.
The investor doesn’t see buying and selling put and call options – leveraged bets on whether stocks and other assets will rise or fall in value over a period of time – as illegal or immoral. “But I don’t think you build a society around people doing it,” he said.
Munger went further in criticizing Robinhood and other trading apps for enabling speculation.
“It’s not just stupid, it’s shameful,” he said. “It’s deeply wrong.”
A Robinhood spokesperson provided the following statement to Insider:
“There is an old guard that doesn’t want average Americans to have a seat at the Wall Street table so they will resort to insults. The future is diverse, more educated, and propelled by engaging technologies that have the power to equalize.
“Adversaries of this future and of change are usually those who’ve enjoyed plentiful privileges in the past and who don’t want these privileges disrupted. Their criticisms are unfortunate but they prove why Robinhood’s mission is in fact critical.
“The new generation of investors aren’t a ‘casino group.’ They are tearing down old barriers to investing and taking control of their financial futures. Robinhood is on the right side of history.”
Gary Shilling warned of rampant speculation in stocks and cryptocurrencies, and predicted a painful end for those involved, in a RealVision interview released this week.
The president of A. Gary Shilling & Co – who has called several previous crashes – also accused the Federal Reserve and Treasury of pumping up asset prices, dismissed fears of higher inflation, and urged investors to resist joining the buying frenzy.
Here are Shilling’s 10 best quotes, lightly edited and condensed for clarity:
1. “The consensus view is that the economy is going to open very rapidly, inflation is going to come roaring back, and interest rates are going through the roof. That is way overdone. We are in a low-inflation, if not deflationary era.” – highlighting that China and other countries produce more than they consume, fueling a global supply glut that depresses prices.
2. “The money pumped out by the Fed and all the fiscal stimulus hasn’t gone into spending, it’s gone into savings and asset inflation. It’s really responsible for things like dogecoin and bitcoin and other cryptocurrencies, and all these speculations. It’s pushed stocks to unbelievable highs in relation to earnings, in relation to anything else, and made them very overpriced. Now, that doesn’t mean that I want to be short stocks right now, because with speculations, you never know how far they’re going to go. They leave the realm of any fundamentals, they’re off in the wild blue yonder.”
3. “There’s too much money floating around, and people don’t know what else to do with it. The Federal Reserve can’t be oblivious to what they’re doing. I know that they’re very honest public servants, but you’d almost think that these guys have a vested interest in pushing up stocks and fostering speculation. At some point, you would think that they’ve got to exercise more caution.”
4. “Until somebody blows the whistle, and that normally is the Fed, there’s no real end to this speculative climate. It just gets more and more extreme. It’s like the sock-puppet thing we saw back in the dot-com era. Absolutely no logic to the thing, but everybody’s having a wonderful time as long as it lasts.”
5. “If things start to unfold as we expect, and we get a big sell-off in equities that takes a lot of these speculations with it, we’ll have an opportunity to make some serious money.”
6. “When we got to the point that the only things that people wanted were gimmick cameras (Polaroid), motorhomes (Winnebago), and amusement parks (Disney), those are the outward flourishes, not the guts of the economy. People were rejecting the basic economy, saying there’s something wrong, or they’re into speculation. There are many similarities between then and now.” – comparing the current excitement around hot stocks with the hype that surrounded the “Nifty Fifty” stocks in the 1960s and 1970s.
7. “How could this end? One possibility is that we wake up tomorrow and find some major financial institution has bit the dust. We had this recently with Archegos, but we can have something like that on a larger scale that just touches off the collapse. You go back to the Tulipmania in Holland in the 1600s, the South Sea Bubble in England in the 1700s – they got to the point where there was a tiny trigger and wham, they all collapsed.”
8. “I’m not making any firm prediction as to when this thing is going to collapse. Speculations outrun any logic and that’s probably going to be true of this one. But at some point, boy, there’s going to be a lot of blood on the floor.”
9. “Back in the day, we all wore suits. I would buy two or three new suits a year, not because they went out of style, but because I wore them out. If that’s what commuting does to the suit, what’s it done to the guy inside the suit?” – predicting the pandemic will permanently alter work habits because many people have realized they dislike commuting.
10. “We had a wake-up call with the pandemic. It’s time to save money, to be cautious, and certainly investment-wise, to avoid speculation. It’s very hard when everybody is making money and you feel, ‘Oh, am I missing out? There’s this garage mechanic, who is no longer fixing cars because he’s making so much money in GameStop. I’m a stupid idiot, why aren’t I involved?’ Well, there are times where you really have to just pluck up your courage and say, ‘No, I don’t want to be involved.'”