Investor Jeremy Grantham says the market’s in a bubble with ‘very seldom seen levels’ of euphoria
Famed investor Jeremy Grantham on Thursday reiterated his warning that Wall Street is in a bubble as individual traders get “carried away.”
“They’re becoming euphoric … They’re borrowing money. They’re trading more shares,” Grantham, co-founder and chief investment strategist at Grantham, Mayo, & van Otterloo told CNBC’s “Squawk Box Asia” on Thursday.
In recent months, Grantham has warned that the massive runs on Wall Street are turning into an “epic bubble.” On Thursday, Grantham pointed to the number of over-the-counter shares traded since last February rocketing to 280 million shares in November and quadrupling to 1.15 trillion shares in December.
“We have very seldom seen levels of investor euphoria like this,” he said, referring to individual investor speculation, rather than institutional.
Grantham said individual investors “are throwing their hearts and souls into it and putting all their cash reserves into the market.” He pointed to the recent rally in bitcoin as well as the proliferation of special purpose acquisition companies (SPACs).
SPACs have no commercial operations and are established solely to raise capital from investors, for the purpose of acquiring one or more operating businesses. Grantham described SPACs, which are sometimes referred to as blank-check companies, as “an invitation to give me your money and I’ll let you know one day what I’m going to do with it.”
CNN Business/Chris Isidore
Joe Biden’s proposed stimulus checks are a lousy way to fix the economy
The most expensive provision in Joe Biden’s $1.9 trillion economic recovery plan is his proposal to send an additional $1,400 to most Americans. According to many economists, that’s the least effective way to help revive the economy.
The added stimulus is born out of widespread support among Congressional Democrats, and many Republicans, including outgoing President Donald Trump, to increase the direct payments from the most recent Covid-19 economic relief package from $600 to $2,000.
“Six hundred dollars is simply not enough if you still have to choose between paying rent and putting food on the table,” Biden said when unveiling his economic recovery plan. “Even for those who have kept their jobs, these checks are really important.”
The problem with the direct payments, according to economists and others critical of the plan, is that much of the stimulus would go to individuals who have not been financially hurt by the Covid-19 pandemic. That means those added dollars may not do much to boost economic activity.
The $1,400 checks would go to most everyone who makes less than $75,000. Taxpayers filing joint returns who earn less than $150,000 would also qualify. Those earning more could qualify for lesser amounts, with a cap of $87,000 for individual tax filers to be eligible.
“That money is not well targeted,” said Mark Zandi, chief economist for Moody’s Analytics.
Zandi said the only economic argument for the checks is that they are a politically feasible way to get a lot of cash into the economy fairly quickly.
“Politics matter, and speed is more important than to get it exactly right,” he said. “But I think it’s the second or third best policy. It’s certainly not the most effective way to help out.”
Fox Business/Jonathan Garber
Trump’s farewell speech has warning on Biden tax hikes
President Trump issued one last warning during his final hours as commander in chief.
“I hope they don’t raise your taxes, but if they do I told you so,” Trump said Wednesday morning at his farewell address from Joint Andrews Base.
President-Elect Joe Biden has pledged to undo at least a portion of the Trump tax cuts. He has repeatedly said he plans to raise taxes for those making more than $400,000 a year and to increase the corporate income tax from 21% to 28%.
“I certainly believe in a fair and progressive tax code where wealthy individuals and corporations pay their fair share,” said Treasury Secretary Nominee Janet Yellen at her Senate confirmation hearing on Tuesday. She added that the tax hikes wouldn’t be appropriate right away as the economy is still recovering from the damage caused by the COVID-19 pandemic.
Some experts, however, say taxes would need to go up for all Americans in order to pay for Biden’s ambitious spending plans.
Biden last week proposed a $1.9 trillion COVID-19 relief package. A study released in October by the Committee for a Responsible Federal Budget said Biden’s spending plan would increase the national debt by $5.6 trillion. Currently, the national debt is $27.8 trillion, or 131% of U.S. gross domestic product.
A median-income family of four will see a $2,000 tax increase if Biden were to “repeal the Trump tax cuts,” Americans for Tax Reform President Grover Norquist told FOX Business last month.
Gold prices to push to $2,300, silver to hit $40 in 2021 – MKS
In its 2021 outlook report, pushed earlier this week, analysts at MKS are remaining extremely bullish on both gold and silver. Despite the weak start to gold, the European precious metals firm said that it expects gold prices to push to $2,300 an ounce this year. The analysts said that they see prices averaging the year around $2,072 an ounce.
“While the global economic recovery shows some positive signs, we will continue to face uncertainties, especially in the first half of the year,” the analysts said. “In the context of low global real interest rates, a slow recovery in growth, higher market volatility and a weakening USD, gold shall remain an asset of choice in investors ’ portfolios as a safe haven and insurance against disruptions.”
The comments come after gold prices tested support at the December low of $1,800 an ounce. Although prices have recovered, analysts have noted that there hasn ’t been enough momentum to push prices above critical resistance around $1,850 an ounce. February gold futures last traded at $1,839.60 an ounce, up 0.53% on the day.
One factor that has limited gold ’s performance since the start of the year is the U.S. dollar, which is currently trading near a one-month higher. Analysts at MKS said that they don ’t expect the U.S. dollar to be a significant factor in 2021.
“One of the key factors driving commodities in 2021 is our expectation for the USD to remain on the weaker side against most of the major currencies,” the analysts said.
While gold is expected to push back well above $2,300 an ounce, its potential pales in comparison to silver.
MKS said that it expects silver prices to push to $40 an ounce this year. The analysts are calling for an average price of around $32.50 an ounce.