US stocks are in a bubble and it is unclear when it will appear, says hedge fund manager

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“I think we’re in a bubble like 2000,” veteran hedge fund manager Mark Yusko told CNN Business. “That doesn’t mean the market will fall tomorrow.”

Yusko, CEO of Morgan Creek Capital Management, pointed to signs of extreme market speculation, such as the 1.625% increase GameStop (GME) in January.

“Equity markets are generally in bubble territory. Look at the parabolic movements of various companies like Tesla,” he said.

Yusko also pointed out how From Apple (AAPL) annual net income has barely changed in the last five years. But earnings per share, which drive stock prices, have risen sharply because the iPhone maker has aggressively recouped its shares.

“This is just financial engineering,” he said.

Impossible in time

Another sample of Yusko’s bubble case is Snowflake. According to data provider Refinitiv, the cloud computing company that lost money, which went public in September, is trading at 327 times revenue. This is far above even that Zoom (ZM) i DocuSign (DOCU) trade to.

Yusko’s bubble warning echoes those made in recent weeks by other well-known market players.

Last month, famed investor Jeremy Grantham said the bullish market that began in 2009 had “matured into a full-fledged epic bubble” marked by “extreme overvaluation, explosive price increases, frantic emissions and a hysterically speculative behavior of investors “.

Of course, no one can have the moment when a bubble will appear. And overheated markets can heat up long before it finally cools down.

“The challenge with extreme ratings is that they can continue longer than you think,” Yusko said.

And Yusko has been overly bearish before. Two years ago, he warned that the stock market was overvalued and that technology stocks, in particular, would fall sharply. Still, the S&P 500 has risen more than 40 percent since then, despite the worst pandemic in a century.

Morgan Stanley: Get on board or get out of the way

While Yusko and Grantham sound the alarm, some of Wall Street’s top companies remain very optimistic about the economy and the stock market. They point to the persistence of minimum interest rates that have forced investors to bet on stocks.

Goldman Sachs on Monday updated its forecasts for GDP for the second quarter of 2021 and 2022 due to the feeling that Democrats will approve a significantly larger relief package than previously forecast.

Meanwhile, Goldman Sachs expects the S&P 500 to rise to 4,300 by the end of the year, up 11% from current levels.

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Michael Wilson, Morgan Stanley’s equity strategist, believes the Reddit-driven stock market scare is already firmly in the rearview mirror.

“It looks like greed is once again taking its toll on fear and the bullish market is poised to resume seriously,” Wilson wrote in a note to clients on Sundays.

After suffering the worst week since October, the S&P 500 quickly recovered its losses last week and rose 4.7%.

While Wilson has recently called for signs of complacency and extreme risk, he warns his clients not to fight this market rally.

“The prevailing view of better economic growth, more fiscal stimulus to come, and the continued printing of food money has everyone ‘all-inclusive,'” Wilson wrote. “When these periods occur, it has seldom been easy. or wise to put oneself in danger. Instead, these trends usually follow their path until they derail or simply run out. “

SPAC mania

Even Yusko, Morgan Creek’s hedge fund manager, delves into one area of ​​market speculation: the SPAC craze.
Special purpose acquisition companies or SPACs are entities without operating assets that exist exclusively to make private companies public. Virgin Galactic, DraftKings and Nikola have been public in this way instead of a traditional IPO. Even former baseball superstar Alex Rodriguez is trying to raise $ 500 million through a SPAC called Slam Corp.

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 focus.

But some argue that SPACs are more evidence of the behavior of bubbles on Wall Street.

SPACs are “an invitation to give me your money and one day I’ll let you know what I’ll do,” Grantham told CNBC recently.

During the first three weeks of 2021 alone, SPACs raised $ 16 billion, surpassing the $ 13 billion raised throughout 2019, according to Goldman Sachs.

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“Bubble-shaped sentiment surrounds SPACs,” Goldman Sachs analysts said.

Yusko disagreed with that sentiment and suggested that Goldman Sachs ’criticism is appropriate because the Wall Street bank relies on traditional IPOs to get a share of its revenue.

“It’s intellectually lazy to make that claim,” he said. “To say that SPACs are the problem is like saying that the problems are hedge funds or mutual funds. 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 been launched recently, the Yusko fund is actively managed. This is crucial, he said, because not all SPACs will be winners, especially given the current high market valuation.

“We’re in an environment,” Yusko said, “where we believe prudence is needed.”

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