Sunday, February 28, 2021

More and more gurus are talking about the next big stock market crash


Bond yields are rising

Cathie Wood, the head of ARK Invest, was on CNBC’s show recently, during the conversation the guru put it this way:

if real interest rates were to rise suddenly and sharply, it would result in a “restoration” of valuations, as would ARK’s fundamentals.

By no means do the company’s CEO’s concerns come from nowhere, because last week U.S. bond yields soared, this is most evident in the 30 – year real interest rate, which rose above 0 percent for the first time since June 2020.

Wood also put it this way:

Looking at the last 20 years, I find it interesting that the P&E (pricing) of the S&P index tends to reach its current peak at the level of 20-25. I think the reason for this may be that most portfolio managers and quantitative analysts expect normalized, nominal GDP to be in the 4-5 percent range, where long-term interest rates should also evolve. Well, by contrast, we believe normalized GDP growth could be closer to 3 percent, so long-term interest rates should stabilize here as well.

Taking this information into account stock markets may now appear to be significantly overpriced, the S&P 500 index is currently rotating at a P / E rate of 45 – of course, this explanation is only valid if we assume that the stock exchanges follow the situation of the economy and no separation has taken place (decoupling). In any case, Wood agreed with the CNBC presenter’s suggestion that he was slow

there may come a “reset in valuations” (valuation reset) and there will be fear in the markets.

The full interview can be viewed here:

Now that’s, among other things thanks to soaring commodity prices real interest rates have risen significantly in recent days and weeks,

doubts are growing about stocks traded at particularly high P / E rates based on their growth potential,

this can also be clearly seen, for example, in the short portfolio of ARK Invest’s ETFs, which line up the most technology companies.

In the ARK Innovation ETF, the flagship of the investment company the short rate has recently jumped to an all-time high, to exactly 1.9 percent, although two months ago that figure was only 0.3 percent. Of course, if we compare the short rate to, say, the short stock of any company discussed during the GameStop frenzy, this 1.9 percent may seem insignificant, but in any case, the steep rise in two months could be a cause for concern for investors.

Michael Burry also warns

Not only does Cahie Wood believe a marked correction may come in the markets soon, several gurus and important indicators have also indicated recently that a downturn may arrive.

Michael Burry, a star investor known as the Big Throw, shared a telling chart on Twitter yesterday comparing the evolution of the volume of loan-financed investment and the S&P 500 Index in a chart (margin debt is reversed) and the recessions since 1997 also takes into account the graph. Based on the figure thoroughly “scissors opened” in the months behind us, based on the figure

relatively many people invest on credit while staying near the historic peak of the U.S. stock index.

And if the graph itself weren’t talkative enough, Burry’s commentary clearly reveals what he thinks now about the state of the markets – as the guru put it right now.

the market is on the verge of dancing, with plenty of “gamblers” trading on credit during the bubble created by the rise of speculative stocks.

In addition, the guru even discussed the role of the dollar as the leading currency and China’s economic growth, which he said will be an issue that will soon become topical. bitcoin will not be a good solution either. Speaking of growing concerns, Burry finally put it this way:

People say I didn’t warn you last time. And yet, no one cared. So you warn me now. And yet, no one is watching now. But there will be evidence that I spoke.

Burry is not alone in his ominous opinion, for example, the Hungarian-born head of Interactive Brokers, Thomas Peterffy, also spoke on the topic, but the infamous Buffett indicator was also announced in January.

In a word like a hundred, there are more and more warning signs regarding that

we may be facing a more massive stock market correction.

Cover image: Alex Flynn / Bloomberg via Getty Images





#gurus #talking #big #stock #market #crash

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