In recent weeks, a plethora of large money managers have spoken out about the speculative fever in the current market. The alarm of caution has been heard from Stanley Druckenmiller to Paul Singer, from Seth Klarman to Howard Marks. All billionaires. Even Warren Buffett, the eternal optimist, expressed his recent difficulty in finding stock bargains in the current market.
The truly cynical might view their words as simply a way to knock stocks lower so that they can buy back in on the cheap. But the S&P 500 index is up about 50% in the past 2 years, despite minimal earnings growth. So I’ll take them at their word.
Joining the chorus of billionaires this week are Julian Robertson (another billionaire) and Jim Chanos (not quite that rich). First, Chanos, courtesy of the WSJ:
“The problem [with] Tesla and Netflix .. is they have gone beyond an interesting product or innovation, to becoming cult stocks, to becoming sort of investments or speculation despite the fundamentals.
“The stock values are so predicated on the future … which is so easy to predict,” he adds a bit sarcastically. “The value is rising really really quickly,” he adds, comparing it to 1999.
He notes, as an example, an analyst on Tesla that upgraded the price target this morning, saying only 5% of the price target was based on cash flow before 2020.
He says investors are “chasing momentum because it’s working.”
But that could have its pitfalls over the long term. In general, Mr. Chanos says the stock market has gotten “extremely speculative” at current levels. He compares it the tech bubble and says the current environment is “almost akin to the day-trading-like market that we had in the late 1990s.”
We’ve noted such concerns ourselves, though as we’ve also noted, timing a short sale in such momentum names is very difficult.
Robertson tilts to a more macro view, in his interview on CNBC:
JULIAN ROBERTSON: That’s really the way I’m looking at stocks primarily now. I think we’re in the middle of a kind of a bubble market, where it’s going to take something– bubble-like to happen. And– prick the bubble and we’ll probably have pretty bad– reactions to the breaking of the bubble. But– probably not right now. And somehow I think we’ll wallow through the political and fiscal crisis we have in front of us. And then we’ll sort of see what happens.
Meanwhile, the average retail investor is much more excited today than 2, 3, or 4 years ago, when there were many more business bargains to be had. I’d rather follow the herd of billionaires myself. But don’t take my word for it. Once again, here is G.C. Selden from more than a century ago:
It is hard for the average man to oppose what appears to be the general drift of public opinion. In the stock market this is perhaps harder than elsewhere; for we all realize that the prices of stocks must, in the long run, be controlled by public opinion. The point we fail to remember is that public opinion in a speculative market is measured in dollars, not in population. One man controlling one million dollars has double the weight of five hundred men with one thousand dollars each. Dollars are the horse-power of the markets the mere number of men does not signify.
This is why the great body of opinion appears to be bullish at the top and bearish at the bottom. The multitude of small traders must be, as a plain necessity, long when prices are at the top, and short or out of the market at the bottom. The very fact that they are long at the top shows that they have been supplied with stocks from some source.
I’d rather follow the billionaires.