Wednesday, July 7, 2021

What Does the Smart Money Say?

Here’s another public service for today. It concerns the stock market. Business Insider has collected the predictions of some of our most savvy investors. As a group they are terrified that the market is in a speculative bubble. And that it will end badly.

Some are invested. Some are not. Some are riding out the bull market’s last hurrah. Some are sitting on the sidelines. Many of them admit that they are early, but, if they are right, better early than late.

Anyway, if you want the ultimate evidence that the market is significantly overvalued and headed for oblivion, consider that Paul Krugman announced that it was “morning in America.” Surely, that’s a sell signal.

Anyway, begin with Michael Burry:

Michael Burry described the state of markets in June as the "greatest speculative bubble of all time in all things," and warned that retail investors are buying into the hype around meme stocks and cryptocurrencies before the "mother of all crashes."

The investor of "The Big Short" fame, who runs Scion Asset Management, pointed to Tesla, GameStop, bitcoin, dogecoin, Robinhood, and the red-hot US housing market as signs of speculative excess earlier this year.

And then there’s Jeremy Grantham:

Jeremy Grantham labeled the market a "fully fledged epic bubble" in January, and described it as the "real McCoy."

"When you have reached this level of obvious super-enthusiasm, the bubble has always, without exception, broken in the next few months, not a few years," the legendary investor and GMO cofounder continued.

"We will have to live, potentially, possibly, with the biggest loss of perceived value from assets that we have ever seen," Grantham added.

Hedge fund billionaire Leon Cooperman is dour in his assessment:

Leon Cooperman expressed deep concerns about financial markets in May.

"Everything I look at would suggest caution, intermediate to long term, would be the rule of the day," the billionaire investor and Omega Advisors boss said. "When this market has a reason to go down, it's gonna go down so fast your head's gonna spin."

However, Cooperman described himself as a "fully invested bear" because that factors that typically cause bear markets — rising inflation, recession fears, a hostile Federal Reserve — weren't present.

Another hedge fund tycoon, Stanley Druckenmiller is also pessimistic:

Stanley Druckenmiller said in May the current bull market reminds him of the dot-com boom, but he cautioned that asset prices could continue rising for a while.

"I have no doubt that we are in a raging mania in all assets," the billionaire investor and Duquesne Family Office chief said. "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," Druckenmiller added.

However, the investor indicated he would pull his cash out of equities in a matter of months.

"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," he said.

And finally, the bond king, Jeffrey Gundlach:

Equities are undeniably expensive, Jeffrey Gundlach said in March.

Claiming the stock market was "anything other than very overvalued versus history is just to be ignorant of all the metrics of valuation," the billionaire investor and DoubleLine Capital boss said. He warned that stocks would fall by upwards of 15% when the downturn comes.

Gundlach, whose nickname is the "bond king," predicted the retail investors that have piled into meme stocks and other speculative assets wouldn't stick around once prices started dropping.

"We'll have a tremendous unwind of a lot of the money that thinks that the stock market is a one-way thing," he said.

If you were interested in knowing what the very smart money was doing, now you know.


Sam L. said...

Ahhhh, Pauly "The Beard" Krugman! I point, I laugh, and go about my business. I trust him not.

Alvin Tostig said...

What's a meme stock?