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

5 Little-Known Ways To Lower Your Taxes

Avatar

Published

on

5 Little-Known Ways To Lower Your Taxes

Everyone loves to pay lower taxes, but very few people understand or take advantage of all the tax breaks that are available to them. Here’s a list of 5 little-known tax breaks that you can use to help lower your tax bill.

1. Pay No Capital Gains Tax

If you sell an asset you’ve owned for more than a year, you pay long-term capital gains tax of either 0%, 15% or 20%. This is a favorable tax treatment when compared to selling assets you’ve owned for less than a year, which are taxed at the same rate as your ordinary income.

But, it’s possible to pay no capital gains tax when selling your long-held assets like stocks and bonds or mutual funds. In order to pay no capital gains tax, your taxable income needs to be less than $39,375 if you are single or $78,750 if you are married when filing your 2019 taxes. For the 2020 tax year, those numbers jump slightly to $40,000 and $80,000.

2. Earned Income Tax Credit

This program directly benefits those with low-to-moderate incomes, and particularly those with children. A single filer would need an adjusted gross income of $15,570 or less to benefit, but for a married individual with three children, the adjusted gross income limit is as high as $55,952. In certain situations where your EITC benefit exceeds the amount of taxes you owe, you would receive a tax refund.

3. Deduct Your Retirement Account Contributions

If you are putting money aside in a traditional IRA as part of your retirement plan, you can contribute up to $6000 per year. If you aren’t part of a retirement plan through work – like a 401(k) – you can deduct all of your contributions no matter what tax bracket you are in. Non-working spouses (or spouses making very little income) can contribute up to $6,000 ($7,000 if 50 or older) into their own IRA account as long as the working spouse has enough earned income to cover both contributions. There are limits to the deductions as income increases, so check with a tax adviser.

4. Saver’s Tax Credit

If you are a single filer with adjusted gross income less than $32,000 (or $64,000 if married) you claim a tax credit (a credit, not deduction – more on this in a moment) of 10%, 20% or 50% of the first $2,000 you put into a retirement account ($4,000 for married filers). The lower your income, the higher the credit amount. Unlike a deduction that lowers your taxable income, a credit reduces the amount of taxes you owe on a dollar-for-dollar ratio. So a $2,000 tax credit reduces your taxes by $2,000.

5. Lifetime Learning Credit

If you are interested in continuing your education, you can utilize the Lifetime Learning Credit. This allows you to go back and study nearly any topic, at any school, you can get back 20% of up to $10,000 in expenses per year. The income limits are $68,000 for single filers and $136,000 for married filers. Now go back and enroll in that art class you always wished you had taken!

Up Next:

Continue Reading

Business

Trump Says Economy ‘Roaring Back’ in June As 4.8 Million Jobs Added

Avatar

Published

on

Trump Says Economy ‘Roaring Back’ in June As 4.8 Million Jobs Added

The economy added back 4.8 million jobs last month, according to the government’s June jobs report released yesterday. That handily beat the 3.7 million jobs forecasted by economists and dropped the unemployment rate down to 11.1%.

After the report was released, President Trump said the economy was “extremely strong” and “roaring back” after the country has regained more than 7.5 million jobs in the last two months. Trump added that the economy will keep growing unless voters elected Democrat Joe Biden in November. He said Biden would raise taxes and hurt the economy and the stock market would “drop down to nothing.”

Jobs Added

Of the jobs added back in June, bars and restaurants hired – or rehired – 1.48 million workers. This comes as many reopened for outdoor dining in the early phases of the reopening. They brought back a similar number of workers in May. It happened after shedding more than 6 million jobs due to the pandemic.

The retail sector regained 740,000 jobs, healthcare added back 358,000 workers, and manufacturing saw 356,000 jobs added.

The energy sector continues to be battered by low oil prices amidst the economic slowdown. Additionally, that industry shed an additional 10,000 jobs last month.

The return of lower-paying jobs like those found in the restaurant and hospitality industry dragged down the average hourly wages for the second straight month.

Many are cautioning against reading too much into reports like average hourly wages while the economy is in such turmoil.

Stephen Stanley, chief economist of Amherst Pierpont Securities, says, “The wage figures will be pretty much useless for a long while until the labor market gets back to some semblance of normality.”

Andrew Chamberlain, chief economist of the job site Glassdoor, also gave an explanation. He added, “Today’s positive jobs report does provide a powerful signal of how swiftly U.S. job growth can bounce back and how rapidly businesses can reopen once the nation finally brings the coronavirus under control — a reason for optimism in coming months.”

Looking Forward

Unfortunately for many of the workers recently rehired to work in bars and restaurants, the recent spike in new coronavirus cases could lead to those jobs quickly being lost for a second time. Bars in many states are being shut down again in an effort to curb the growing number of cases.

The unemployment rate fell for the second straight month. However, the Bureau of Labor Statistics is trying to fix a reporting error that, if corrected, would increase the unemployment rate by 1%.

The problem is how households respond to the monthly survey that is used to calculate the unemployment rate. The jobless rate would have been 1 point higher if not for continued problems in how respondents answer the question about their employment status.

What many consider the “real” unemployment rate, which is the U6 rate, includes workers who can only find part-time jobs. It also includes those who’ve become too discouraged to look for jobs because so few are available. Using that measurement, the unemployment rate stands at 18% in June, down from 21.2% in May.

Up Next:

Continue Reading

Business

Trump Favors Larger Stimulus Checks, Says ‘Tremendous’ Market Crash if Biden Wins

Avatar

Published

on

Trump Favors Larger Stimulus Checks, Says ‘Tremendous’ Market Crash if Biden Wins

In a wide-ranging interview with Fox Business News, President Trump mentioned his support for another round of stimulus checks and says should Joe Biden win the election in November, we should expect the stock market to crash “a tremendous amount.”

On Stimulus Checks

Speaking with Blake Burman, the president says he is in favor of another round of stimulus checks, but wants to make sure that there is a financial incentive for Americans to return to work.

“I support it, but it has to be done properly. I support actually larger numbers than the Democrats, but it’s got to be done properly. We had something where it gave you a disincentive to work last time. And it was still money going to people, and helping people, so I was all for that. But we want to create a very great incentive to work.”

Trump also mentioned he wants the checks to arrive quickly and spent quickly, without the Democrats adding complications.

“I want the money getting to people to be larger so they can spend it, I want the money to get there quickly and in a non-complicated fashion. And they wanted to make it too complicated, also it was an incentive not to go to work,” said Trump.

Returning to work is what hard-working Americans are looking forward to, says Trump, and he wants there to be a financial incentive to do so.

“You’d make more money if you don’t go to work. That’s not what the country is all about. And people didn’t want that. They wanted to go to work but it didn’t make sense because they make more money if they didn’t… we want people to get out and we want to create a tremendous incentive for people to want to go back to work.”

On Biden and Taxes

When asked about Joe Biden’s recently announced plans to raise corporate taxes if he becomes President, Trump said “You’re going to crash the market. 401(k)s will be down the tubes, the wealth of the country will be down.”

He added “That will kill the market. It will kill everything we are doing, it will kill jobs, and it will be very bad. Frankly, the stock market is doing well, but it’s an overhang. If he got elected, and they say this, that’s an overhang over the market, because the market would crash. Would absolutely crash.”

When asked what he means by crash, Trump responded, “Markets would go down by tremendous amounts. He’d raise taxes, he’d raise regulations. Look, one of the biggest things I’ve done is I’ve cut regulations more than any President in history. We still have regulations, but they’re much less. His people, the people around him (Biden) are radical left. They’re going to raise taxes, they’re going to raise regulations, and they’re going to put everyone out of business. It would be a disaster.”

Up Next:

Continue Reading
Advertisement

Facebook

4th of July Sale

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.