America’s spent the past year struggling with a pandemic and unprecedented political strife. You wouldn’t know it from looking at the stock market.
The S&P 500 surged to an all-time high on Wednesday, after logging more than two dozen record closes in 2020. By some measures stocks are more expensive than at any time since the dot-com bubble. Investor darling Tesla recently boasted a market value greater than the next nine largest automakers combined. Novice investors are rushing to trade complicated instruments like options and snap up IPOs, giving many experts pause.
Are we in a bubble?
No one will be able to say for sure unless it pops. But here are five billionaire investors who say the answer is ‘yes.’
Who he is: founder of Icahn Enterprises and a Wall Street legend.
Earlier this month Icahn told CNBC anchor Scott Wapner that in its rush to get everything back to normal, the S&P is wildly overestimating the market value of certain stocks, and a correction is all but inevitable.
What he says: “In my day, I’ve seen a lot of wild rallies with a lot of mis-priced stocks, but there’s always one thing they all have in common,” declared Icahn. “Eventually they hit a wall and go into a major painful correction, and nobody can predict when it will happen. But when it does, look out below.” He also added that “another thing [these wild rallies] have in common: It’s always said ‘It’s different this time,’ but it never turns out to be the truth.”
Who he is: Grantham is the co-founder and chief investment strategist of the Boston-based asset management firm Grantham, Mayo, & van Otterloo, and also one of the world’s leading donators to environmental causes.
What he says: In a Jan. 5 essay on GMO’s website Grantham warned that “the long, long bull market since 2009 has finally matured into a full-fledged, epic bubble,” which will feature “extreme overvaluation, explosive price increases… and hysterically speculative investor behavior. I believe this event will be recorded as one of the great bubbles in financial history, right along with the South Sea bubble, 1929, and 2000.” He also noted that in a bubble, prices tend to accelerate at the late stages, as the market gets closer to a crash, which is what he currently sees happening.
Who he is: Cooperman is a legendary hedge-fund manager, the former chief executive officer of Goldman Sachs Asset Management and the founder of the private investment partnership Omega Advisors, Inc.
What he says: Cooperman recently told Forbes he’s concerned that low-interest rates will lead to too much speculation, pointing to booms for Tesla stock and Bitcoin as signs of “of speculative excess on Wall Street.”
Additionally, Cooperman is worried about the young, inexperienced “Robinhood investors” whose trades have propped up struggling companies such as Hertz, Eastman Kodak and many of the major airlines. “A lot of irrational things are being done in this market that on the surface don’t seem to make a lot of sense,” says Cooperman, “This market will end in tears.”
Who he is: Rogers technically retired at 37 to travel around the world and live off the fortune he made from the Quantum hedge fund he co-founded with George Soros.
What he says: Late last December Rogers told the BBC that even as everyday people were struggling due to the Pandemic, “as I look around the world, bonds are certainly in a bubble. Stocks in some countries are near highs. Property in many places is [in a bubble]. About the only asset class I see that’s still cheap, are commodities.”
He added that he’s not ready to term the market a full-blown bubble…yet. “if you look at some, you know, electronic or technology stocks that go up all over the world like Samsung, Tencent and others, they’re going up and a bubble is developing. You having a whole new crowd of investors come into the market who don’t know all the signs are there. It’s not a full fledged bubble yet, but I can see signs of a bubble developing. I’ve seen this movie before.”
Who he is: Gundlach is the founder and CEO of DoubleLine Capital, and such is his acumen that he has sometimes been called the “bond king.”
What he says: At a keynote speech at Forbes’ Wealth Management Summit in November, Gundlach said that the stock market is currently overvalued and due for a “significant” downturn this year or next.
His main concern is that S&P has soared 75% over the past five years, while the increase in GDP, i.e. the measure of value added to the economy by tangible goods, has been dragging behind the rest of the world. Gundlach is also concerned that without the growth of the “FAANG stocks” (which is trader slang for text giants such as Facebook, Apple, Amazon, Netflix and Google-parent Alphabet), the growth of the S&P would be relatively flat over the past two years. Tech companies did well for themselves during the pandemic, but Gundlach worries that it’s not wise for one sector of the economy to be wagging the dog.
“There’s a myth that the world stock market is on some sort of bull market tear, but nothing could be further from the truth,” he told Forbes. “If you take the United States out, it absolutely hasn’t gone up in the last three years,” and even then, “the ‘super six’ is carrying the whole market on their back, and narrow markets aren’t very attractive.”