Rising U.S. stock rallies and wild speculation by amateur investors are raising concerns about bubbles among market veterans, and professional investors have even begun to call the current bubble an “epic bubble.
This, the madness of retail investors, so many fund managers also feel the pressure, and even have to go with the flow.
Bigwigs warn: It’s a bubble of epic proportions!
The global market in 2020 was dramatic: the global market crashed in March and rebounded quickly afterwards.
Among them, the speculative investments of retail investors cannot be ignored. Among all the speculative bets, Bitcoin has soared to new highs, while retail investors are still buying popular stocks like tesla “with their eyes closed”, without any regard for their valuations.
In a letter to the fund’s investors, Seth Klarman, founder of hedge fund Baupost Group and a value investing guru, pointed out that the Federal Reserve’s move to lower interest rates and pump a lot of money into the financial system since the beginning of the Epidemic is like “boiling a frog in warm water” and making investors increasingly unaware of the risks.
Jeremy Grantham, co-founder of GMO, said in a recent interview with Bloomberg that the U.S. stock market was already in an epic bubble and that Biden‘s economic recovery plan would push it to even more dangerous new highs, followed by an inevitable collapse.
Grantham believes the next crash in U.S. stocks will be like 1929, and possibly like when the Internet bubble burst in 2000, when the Nasdaq Composite Index fell 80 percent in a 31-month period.
In a mid-January report, analysts at research firm Absolute Strategy Research (ASR) produced a list of bubble indicators, comparing the current rally in U.S. growth stocks to The Japanese stock market bubble of the 1980s, the Internet bubble of the late 1990s and the commodities bubble of the early decade of the 21st century.
Common features in the above bubbles include low interest rates, overvalued stocks, out-of-control retail trading and accelerating stock returns. On all of these fronts, the current market conditions look alarming.
ASR notes that more than 10% of stocks in the U.S. S&P 500 benchmark are 40% or more over the average price of the past 200 days, a phenomenon seen only four times in the past 35 years.
Fund managers on the edge of their seats
Fund managers are constantly on the alert for pullbacks, while watching the stock market rally, some are forced to “get on board”.
David Older, head of equity at Carmignac, said.
Predicting when this bubble will end is difficult. It can last longer than you think. I don’t see the signs of a big drop yet, but we’re getting more cautious.
Still, institutional and retail investors with lots of cash in hand could see the market continue in the bizarre way it is today for some Time as it floats on an unprecedented wave of monetary and fiscal support and bond yields approach historic lows.
Clients have become increasingly worried, says ASR co-founder Ian Hartnett.
But, he adds, if interest rates stay low, the rally in stocks could be just beginning, and there will be so much pressure on fund managers to watch stocks rise that they may have to finally choose to “get on board” – even if they know it’s in a bubble.
Fund managers fear that if they miss out, their professional reputations will take a hit as well. So they rack their brains to “rationalize” the bubble as a way to convince the chief investment officer or investment committee why today’s rally can continue for a long time.
Casinos closed, sports stopped, and retail investors with money to spare came to speculate
Some point to the explosive growth of inexperienced retail investors in trading as a particular concern.
These investors are seen by professional fund managers as frivolous “weak hands” with little tolerance for losses and often “take a gamble and leave”. Such people are increasingly involved in the U.S. stock market.
Carmignac’s Older says that in the U.S., Americans are turning to stocks because “casinos are closed and many sporting events are closed.
He notes that much of the retail investment is focused on “hyper-growth” stocks such as electric car makers.
These companies have no valuation cap.
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