“I do think we are in a bubble like we were in 2000,” veteran hedge fund manager Mark Yusko told CNN Business. “That doesn’t mean that tomorrow the market is going to crash.”
“Equity markets broadly are in bubble territory. Look at the parabolic moves by a number of companies like Tesla,” he said.
“That’s just financial engineering,” he said.
Impossible to time
Yusko’s bubble warning echoes ones made in recent weeks by other well-known market players.
Of course, no one can time when a bubble will pop. And overheated markets can get much hotter before finally cooling off.
“The challenge with extreme valuations is they can go on longer than you think,” Yusko said.
Morgan Stanley: Get on board or get out of the way
While Yusko and Grantham are sounding the alarm, some major Wall Street firms remain very optimistic on the economy and the stock market. They point to the persistence of rock-bottom interest rates that have forced investors to bet on stocks.
Goldman Sachs upgraded its forecasts for second-quarter 2021 and 2022 GDP on Monday because of a sense that Democrats will pass a significantly larger relief package than previously anticipated.
Meanwhile, Goldman Sachs expects the S&P 500 to climb to 4,300 by year end, up about 11% from current levels.
Michael Wilson, equity strategist at Morgan Stanley, thinks the stock market’s Reddit-driven scare is already firmly in the rearview mirror.
“It appears that greed once again has the upper hand over fear and the bull market is ready to resume in earnest,” Wilson wrote in a note to clients Sunday.
After suffering its worst week since October, the S&P 500 rapidly regained its losses last week, spiking 4.7%.
“The prevailing view of better economic growth, more fiscal stimulus to come and continued money printing from the fed has everyone ‘all in,'” Wilson wrote. “When such periods occur, it’s rarely been easy or wise to get in the way. Instead, these trends typically need to run their course until they are derailed or simply exhausted.”
Late 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 SPACs are more evidence of bubble-like behavior on Wall Street.
SPACs are “an invitation to give me your money and I’ll let you know one day what I’m going to do with it,” Grantham recently told CNBC.
During the first three weeks of 2021 alone, SPACs raised $16 billion, surpassing the $13 billion that was raised in all of 2019, according to Goldman Sachs.
“Bubble-like sentiment surrounds SPACs,” Goldman Sachs analysts said.
Yusko disagreed with that sentiment and suggested the criticism from Goldman Sachs is convenient because the Wall Street bank relies on traditional IPOs for a chunk of its revenue.
“It’s intellectually lazy to make that statement,” he said. “Saying SPACs are the problem is like saying hedge funds or mutual funds are the problem. It’s just a legal structure.”
Yusko said SPACs are cheaper, more flexible and a smarter way to raise money than traditional IPOs.
Unlike the other two SPAC ETFs that have recently launched, Yusko’s fund is actively managed. That’s critical, he said, because not all SPACs will be winners, especially given the loftiness of current market valuations.
“We are in an environment,” Yusko said, “where we believe caution is warranted.”