Connect with us

Business

Legendary Investor Jeremy Grantham Warns: We’re In A Bubble, Speculators Are ‘Playing With Fire’

Avatar

Published

on

Legendary Investor Jeremy Grantham Warns: We’re In A Bubble, Speculators Are ‘Playing With Fire’

Jeremy Grantham, co-founder and chief investment strategist of money management firm GMO, warns that a combination of Fed money printing and stir-crazy investors have inflated a “real McCoy” asset bubble that will burn a lot of individuals.

During an interview on CNBC, Grantham was asked his thoughts on the stunning market rally from the March lows. He said he’s been completely amazed. However, cautions this is the only rally in market history that is occurring while the economy is struggling.

“Regarding the stock market rally since March: I’ve been completely amazed, almost since the low. The speed and now the extent, and the lack of major interruptions along the way. It is a rally without precedent… and the only one in the history books that takes place against a background of undeniable economic problems. All the other ones took place at a time when the market at least believed that things were great. They may have been wrong on occasion, but they believed at the time that everything economic and financial was terrific. And this time everyone agrees that the economics have a major problem.”

Causes

When asked about the increase in new trading accounts being opened since the stay-at-home orders were issued, Grantham said these new traders were looking for an outlet and turned to the stock market, and that the Fed also shares some of the blame for the markets unprecedented rise.

“I think perhaps being cooped up, indoors, makes people feel frustrated, looking for outlets. I think that may have played some psychological role in the massive participation of individuals. Clearly the Fed scattering money around has created a favorable environment, as it often does. And with this amount of money slopping around and with the economy depressed, it would be fairly traditional for some of the money to find its way into the market. So that in itself, is unexceptional. It’s the ignoring of the downside problems that is perhaps exceptional.”

Grantham also warns that while we have seen a few bankruptcies so far, like Hertz, that the economic fallout from the economic lockdown will extend for years, and against that backdrop it is hard to see a full economic recovery. “I think it is quite likely that this will have tentacles going out years into the future, that whole industries will never fully recover. I think if you push any economist they will tend to agree with that statement. If you wound a few major industries on a long term basis, it’s hard to imagine the broad economy will get back to a fully-healthy state,” Grantham added.

Not in a Bubble?

He said despite the massive rally since March, he wasn’t convinced that we were in a bubble. But now, he says his confidence is rising, and that we are now in a “real McCoy” bubble.

“This is crazy stuff. And I’m talking about not the last three or four months, but the last few weeks. We’ve now reached a level where you buy bankrupt companies, you issue stock in bankrupt companies, that will probably be used to pay off the bondholders, and you bid up favorite companies to ludicrous levels. This is really the real McCoy.”

Surprisingly, Grantham believes the more maniacal stock buying we see, the better it is for bears expecting another collapse.

“Like 1929 or 2000, you want to see as much crazy participation by screaming leaders of wild investors as you can possibly see. That should make any bear feel better. Even in the three or four weeks since I was writing about how little confidence I have compared to the other bubbles, my confidence is rising quite rapidly that this in fact becoming the fourth real McCoy bubble of my investment career. The great bubbles can go on a long time and inflict a lot of pain, but at least I think we know now that we are in one. And the chutzpah involved in having a bubble at a time of massive economic and financial uncertainty is substantial.”

Grantham Sends Out A Warning

He does have a warning for the new investors who have found early success in the markets. He congratulates the ones who cashed out, but warns the rest they are playing with fire.

“I certainly applaud them if they cash out and put it in their piggy bank. God bless them, they’ve done well. The US right now is simply playing with fire. You might make a lot of money in a really short time, but recognize that you are skating on thin ice. It’s a job for hedge funds, real professionals, and a lot of them will get burned. It certainly is not a task for individuals.”

Finally, Grantham offers a bit of advice:

“Sell US (stocks) 100%, buy emerging and throw the key away for a few years and you’ll have a story for your grandchildren about how you outperformed the investment professionals and everyone else.”

Up Next:

Business

Gold ‘Frenzy’ To Build Around Election, Platinum Could Soar 50% By Year-End

Avatar

Published

on

Gold ‘Frenzy’ To Build Around Election, Platinum Could Soar 50% By Year End

Peter Hug, head of the precious metal division at Kitco, believes the Fed’s decision to hold interest rates at near-zero through at least 2023 is bullish for precious metals and particularly gold. He also mentioned the road platinum can head to by the year’s end.

“About three Fed meetings ago they indicated they would hold rates at pretty much zero through the end of 2021 into early ‘22, today they’ve extended that by an additional year, there have been some analysts that are suspecting they will keep rates at zero right through 2024, so we’ve got another almost four years of zero interest rates to look forward to,” said Hug.

“The Fed being a bit more accommodative on inflation indicates to me that it’s a very positive environment for hard assets in general but I think the metals as well will continue to move higher over the next period of time based on the dovishness of the Fed, global central banks and the uncertainty of the US election coming up in about six weeks.”

The State of the Gold and Silver Markets

Hug said the current consolidation phase is a great sign of the overall health of the gold and silver markets. This comes after the frenzy in the gold and silver markets about a month ago.

“The market has been consolidating, which is a very good sign, especially for gold. Gold has been consolidating between our support level of 1925 and 1975 for the better part of two weeks. Silver seems to be between $26.50 – $27.50 range and consolidating as well. The fact that people are not selling into a market that is as frenetic as it was a month or six weeks ago, indicates to me that this market is setting up for the next leg higher once we get through this consolidation phase.”

Availability and Premiums

The gold and silver markets are taking a bit of a breather and the mania has slowed a bit. With this, Hug said the availability of gold and silver coins is getting better. He said premiums are coming down as well.

“On the gold and silver side, dealers are starting to show inventory. That’s not a result of increased production, it’s more a result because of this consolidation phase, retail investors have started to pull back on the markets so there’s not as much buying frenzy in the physical space right now, I think that changes if gold gets north of $2,000 again. But this consolidation of $50 range in gold and the $1, $1.50 range in silver has basically dried up the demand at these levels.”

“So production is still coming on board and dealers are starting to build inventory. And because of that you are seeing premiums come down. Silver maple leafs you can get, again, depending on quantity, somewhere between $5-6 over spot, Eagles are down somewhere between $5-7 over spot, so you are starting to see as this market stays sideways and we don’t see another rush into the buying side from the retail investor, you give it another 2-4 weeks and I think there will be reasonable inventory on the market and premiums should come down.”

Volatility to Return Soon?

Hug said that if you are looking to acquire gold and silver coins, you shouldn’t wait long as we could see volatility return very soon.

“I caution that past October 15 the market is going to be very volatile as we go into the election.”

Other than gold or silver, Hug sees a huge opportunity in the platinum space. There, he expects prices to climb 50% by the end of the year.

“I’m constructive platinum. It is also consolidating in the $900-950 range, but I do anticipate platinum to be north of $1000 and then look to $1200 possibly $1400 before year end.”

Up Next:

Continue Reading

Business

US Billionaires Got Richer During Pandemic by $845 Billion

Avatar

Published

on

US Billionaires-featured

US billionaires got richer during the pandemic by a tune of $845 billion. This represents a 29% increase from the time the Covid-19 lockdowns started until now. While the stock market crashed during the early days of the pandemic, it has since recovered. Along with recovery are net worth increases for America’s billionaire. Among the pandemic’s big winners of 2020 were Jeff Bezos, Elon Musk, and Mark Zuckerberg. Also in the list were investor Warren Buffett, Oracle CEO Larry Ellison, and ex-NY Mayor Michael Bloomberg.

RELATED: Jeff Bezos Is Now Worth $200 Billion

In a report released Thursday, the Institute for Policy Studies and the Americans for Tax Fairness (ATF) said the total net worth of 643 of the nation’s richest people rose from $2.95 trillion to $3.8 trillion.  

This is equal to a 29% increase between March to September. The report based the numbers on Forbes’ annual billionaire’s report and real-time data. 

Big Winners

Jeff Bezos, the founder, and CEO online retail giant Amazon is now the world’s richest man. The pandemic forced people indoors and played right into Amazon’s online strategy. As millions switched to online shopping, demand for Amazon’s services skyrocketed. Amazon shares zoomed along with 40% in 2020, as the company racked up billions in orders. People bought groceries, medicine, household products, and entertainment items on Amazon’s sites. As the company grew richer, so did its CEO and majority stockholder. On August 19, as stock prices of Amazon went up, his net worth exceeded $200 billion. As of September, Amazon stock has fluctuated and Bezos’ current worth is $184 billion. 

Another rich guy that got even richer was Tesla’s founder and CEO Elon Musk. Tesla’s value grew five times its January price. By August, the company’s stock split pushed his personal shares to $104 billion. This allowed him to join the coveted centibillionaire club. Compared to his March net worth of $24.6 billion, he’s now over four times that. As of September, with Tesla dropping value, Musk’s worth has dropped as well to $88 billion. 

Facebook’s Mark Zuckerberg, who was worth $107.6 billion in August (now down to $93.7 billion). Facebook stock rose from $209 in Jan to $303 in August, making his 13% stake worth over $100 billion. Like Musk, he also joined the centibillionaire club this year. 

“COVID crisis supercharges inequalities”

Chuck Collins, director of the Institute for Policy Studies’ Program on Inequality, and co-author of the report said he was somewhat shocked by the figures. He added that the COVID crisis is “supercharging America’s existing inequalities.” He said, “I would have thought maybe six months into this that things would have shaken out – that everybody would take a hit.” 

“The difference is stark between profits for billionaires and the widespread economic misery in our nation. It sort of dramatizes the unequal sacrifice and profiteering element of the wealth accumulation at the top.”

Meanwhile, Covid-19 infected 6 million Americans and killed more than 200,000. As businesses collapse, the economy outside of Wall Street is in recession. More than 50 million jobs vanished in the pandemic. At present, 14 million Americans remain unemployed. Even those lucky enough to still have jobs got hit. Average work income fell by 4.4.%, per Bureau of Labor Statistics data. Outbreaks are still prevalent, even as a vaccine remains under development. 

As such, the economy’s reopening remains slow. 

Even local governments are feeling the pressure. States and cities are hamstrung with crippling deficits. California declared a $54 billion deficit, while New York City is looking at a $9 billion loss in revenue. From now until 2022, state budgets face a $555 billion deficit. This is according to the Center on Budget and Policy Priorities.

COVID-19’s unique effect made those with better plans during the pandemic fares better than most. In the case of Amazon, people flocked to their site when going out posed safety issues. For the others, the rise in stock reflected more on how they handled their business during the crisis. Some people are just quicker to seize on opportunities, even those coming from a crisis.

Watch this as Bloomberg reported last July 2020 on how billionaires got $637 billion richer during the pandemic:

How do you feel about the billionaires getting richer during a pandemic?

Please Select One:

View Results

Loading ... Loading ...

Should we begrudge the rich getting richer, especially at a time like this? Do they deserve this success? Let us know what you think by leaving your thoughts on the comment section below.

Continue Reading

Business

Fed Keeps Rates At Zero, Powell Says More Fiscal Support Needed

Avatar

Published

on

Fed Keeps Rates At Zero, Powell Says More Fiscal Support Needed

The Federal Reserve wrapped up its last meeting before the November elections. It announced that it would keep rates at essentially zero until at least 2023. This serves as a signal that it doesn’t see inflation as an issue at all for the foreseeable future.

Fed Chairman Jerome Powell said, “We’re going to continue to monitor developments, and we’re prepared to adjust our plans as appropriate.”

“With inflation running persistently below this longer run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved,” the Fed’s post-meeting statement said.

Uncertainty and the Stock Market

However, the Fed’s latest projections have core inflation staying below their 2% target until 2023. This leaves many observers unsure of the Fed’s actual plan to spur the inflation they desire. This uncertainty caused the stock market to drop after the announcement.

“He noted that targeting an inflation overshoot for ‘some time’ as the statement says, means that they are not targeting a ‘sustained’ overshoot. So how long is ‘some time’ if it isn’t sustained?'” asked AB economist Eric Winograd. “That imprecision is a problem that the committee is going to have to solve to reap the full benefits of the framework shift. It’s not a coincidence that the stock market, which had been in positive territory, flipped negative after the chair’s comments.”

“He’s the great and powerful Oz. Investors got duped. They thought enhanced forward guidance meant something, but when they peeked behind the curtain they realized the Fed didn’t do anything, and the market rolled over,” said Michael Arone, chief investment strategist at State Street Global Advisors.

Jon Hill, a senior fixed-income strategist at BMO, added “This is dovish – lower rates for longer, higher equities, weaker dollar. The Fed is saying we’re not hiking in 2023, maybe in 2024 … What they’re saying is these are our goals. We expect to have just barely met them and even then, they’re not raising rates.”

Stimulus and Economic Recovery

Stepping ever-so-slightly into the political realm, Powell said that Congress should pass another stimulus package to support the economic recovery. He then identified unemployment aid, small business relief and funding for state and local governments as three key areas.

“More fiscal support is likely to be needed,” Powell said. “The details of that are for Congress, not the Fed.”

Republicans have repeatedly stated that they won’t provide additional funding to bailout poorly managed cities and states as part of any additional stimulus bills.

Up Next:

Continue Reading

Subscribe To Our Newsletter:

Advertisement

Facebook

Trending

Copyright © 2019 The Capitalist. his copyrighted material may not be republished without express permission. The information presented here is for general educational purposes only. MATERIAL CONNECTION DISCLOSURE: You should assume that this website has an affiliate relationship and/or another material connection to the persons or businesses mentioned in or linked to from this page and may receive commissions from purchases you make on subsequent web sites. You should not rely solely on information contained in this email to evaluate the product or service being endorsed. Always exercise due diligence before purchasing any product or service. This website contains advertisements.

[email]
[email]