“I think we’re in a bubble like in 2000,” veteran hedge fund manager Mark Yusko told CNN Business. “This does not mean that tomorrow the market will break.”
“Stock markets in general are in bubble territory. Look at the parabolic movements of several companies like Tesla,” he said.
“This is just financial engineering,” he said.
Impossible with time
Yusko’s bubble alert echoes those made in recent weeks by other well-known market participants.
Of course, no one knows when a bubble will burst. And overheated markets can get much hotter before they finally cool down.
“The challenge with extreme assessments is that they can last longer than you think,” said Yusko.
Morgan Stanley: Board or get out of the way
While Yusko and Grantham raise the alarm, some of the top Wall Street companies remain very optimistic about the economy and the stock market. They point to the persistence of minimum interest rates that forced investors to bet on shares.
Goldman Sachs updated its second quarter GDP forecasts for 2021 and 2022 on Monday because of the feeling that Democrats will approve a significantly larger relief package than anticipated.
Meanwhile, Goldman Sachs expects the S&P 500 to rise to 4,300 by the end of the year, an increase of about 11% from current levels.
Michael Wilson, a stock strategist at Morgan Stanley, thinks that Reddit’s fear in the stock market is already firmly reflected in the rear view mirror.
“It seems that greed once again has control over fear and the bull market is ready to resume for real,” Wilson wrote in a note to customers on Sunday.
After suffering its worst week since October, the S&P 500 quickly recovered its losses last week, reaching 4.7%.
“The prevailing view of better economic growth, more fiscal stimulus to come and the Fed’s continued impression of money has left everyone ‘in’,” wrote Wilson. “When these periods occur, it is rarely easy or wise to get in the way. Instead, these trends usually need to run their course until they are derailed or simply exhausted.”
SPAC mania
At the end of last month, Yusko launched Morgan Creek Exos SPAC Originated ETF, a fund that will target pre- and post-merger SPACs with an equal weight approach.
But some argue that SPACs are more evidence of bubble behavior on Wall Street.
SPACs are “an invitation to give me your money and I will one day tell you what I’m going to do with it,” Grantham recently told CNBC.
In the first three weeks of 2021 alone, SPACs raised $ 16 billion, surpassing the $ 13 billion raised throughout 2019, according to Goldman Sachs.
“A bubble feeling surrounds SPACs,” said Goldman Sachs analysts.
Yusko disagreed with that sentiment and suggested that Goldman Sachs’ criticisms are convenient because the Wall Street bank relies on traditional IPOs for much of its revenue.
“It is intellectually lazy to make that statement,” he said. “To say that SPACs are the problem is like saying that hedge funds or mutual funds are the problem. It’s just a legal framework.”
Yusko said that SPACs are cheaper, more flexible and a smarter way to raise money than traditional IPOs.
Unlike the other two SPAC ETFs that were launched recently, Yusko’s fund is actively managed. This is critical, he said, because not all SPACs will be winners, especially given the high value of current market assessments.
“We are in an environment,” said Yusko, “where we believe that caution is necessary.”