US equities 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 in 2000,” veteran hedge fund manager Mark Yusko told CNN Business. “That doesn’t mean the market will collapse tomorrow.”

Yusko, CEO of Morgan Creek Capital Management, showed signs of extreme market speculation, such as the 1,625% increase for GameStop (GME) in January.

“In general, the stock markets are in bubble territory. Look at the parabolic movements of several companies like Tesla,” he said.

Yusko also showed how Apple (AAPL) annual net income has barely increased in the last five years. But earnings per share, which determine stock prices, rose sharply as the iPhone maker aggressively bought back its shares.

“This is just financial engineering,” he said.

Impossible time

Another exhibit in Yusko’s bubble case is Snowflake. The loss-making cloud computing company, which went public in September, trades 327 times its revenue, according to data provider Refinitiv. It’s much more than that Zoom (ZM) and DocuSign (DOCU) trade at.

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

Last month, renowned investor Jeremy Grantham said the bull market, which began in 2009, had “matured into a full-fledged epic bubble” marked by “extreme overvaluation, explosive price increases, frantic emissions and hysterical speculative investor behavior”.

Of course, no one can have time for a bubble to appear. And overheated markets can heat up long before it finally cools down.

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

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

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

While Yusko and Grantham are sounding the alarm, some major Wall Street companies remain very optimistic about the economy and the stock market. They indicate the persistence of lower interest rates that have forced investors to bet on shares.

Goldman Sachs updated its GDP forecasts for the 2021 and 2022 quarters on Monday due to the sentiment that Democrats will pass a significantly larger aid package than previously anticipated.

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

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Michael Wilson, a stock strategist at Morgan Stanley, believes the Reddit-led stock market scare is already firm in the rearview mirror.

“It seems that greed has once again taken over the fear and the bull market is ready to resume seriously,” Wilson wrote in a note to customers on Sunday.

After suffering the worst week in October, the S&P 500 quickly regained its losses last week, up 4.7%.

Even though Wilson has recently shown signs of satisfaction and extreme risk, he warns his customers not to fight this market rally.

“The predominant view of better economic growth, more tax incentives and continued printing of food money has it all,” Wilson wrote. “When such periods occur, it has seldom been easy or wise to stumble. Instead, these trends must follow their course until they are derailed or simply exhausted.”

SPAC mania

Even Yusko, Morgan Creek hedge fund manager, is sinking his head into one area of ​​market speculation: the SPAC mania.
Special purpose procurement companies or SPACs are shells without operating assets that exist only to make private companies public. Virgin Galactic, DraftKings and Nikola became 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 the 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 balloon-like behavior on Wall Street.

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

In the first three weeks of 2021 alone, SPACs raised $ 16 billion, exceeding the $ 13 billion that was raised throughout 2019, according to Goldman Sachs.

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“The bubble-like feeling surrounds the SPACs,” Goldman Sachs analysts said.

Yusko disagreed with this sentiment and suggested that criticism from Goldman Sachs is appropriate, as the Wall Street bank relies on traditional IPOs for some of its revenue.

“It’s 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 structure.”

Yusko said SPACs are cheaper, more flexible and a smarter way to raise money than traditional IPOs.

Unlike the other two recently launched SPAC ETFs, the Yusko fund is actively managed. This is critical, he said, because not all SPACs will be winners, especially given the current market valuations.

“We are in an environment,” Yusko said, “where we believe caution is needed.”

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