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Novogratz says stock rally is a bubble ready to burst

"The economy is grinding, slowing down, we're lurching in and out of Covid, yet the tech market makes new highs every day."
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Mike Novogratz, money manager and Galaxy Digital Holdings Ltd. owner that specializes in digital currency, said the stock market is "unhinged from reality as it rises higher -- and small investors should get out before it crashes. We are in irrational exuberance -- this is a bubble," in a Bloomberg Television interview.

"The economy is grinding, slowing down, we're lurching in and out of Covid, yet the tech market makes new highs every day. That's a classic speculative bubble."

Wall Street analysts have been also skeptical of the rise in stock prices. The S&P 500 index has been moving higher in the last month erasing losses created by the coronavirus pandemic. So much so that the index has registered its best quarter since 1998. Technology stocks on the Nasdaq 100 have done better.

stock prices Mike Novogratz COVID

Wall Street analysts have been also skeptical of the rise in stock prices.

Wall Street heavyweights including Stan Druckenmiller and David Tepper find the stocks going up alarming. They believe the risk-reward of holding shares is the worst they've encountered in years. Druckenmiller said a V-shaped recovery that most people are talking of -- a quick snap back of the economy once the pandemic is over, is a fantasy.

He believes the Treasury borrowing is going to crowd out the private economy and even affect the Federal purchases.

Tepper, who runs the $13 billion Appaloosa hedge fund, said that next to 1999, equities are overvalued the most he's ever seen.

A survey conducted by DataTrek Research found that one-fifth of the respondents did not have a fair idea of where the S&P 500 Index would end this year. They bet on a 10 percent rise from current levels. The same number predicted a 10 percent down by end 2020.

"Every option from 'really bad' (down +10% from here) to 'really good' (+10%) got basically the same number of votes," Nicholas Colas, DataTrek's co-founder, wrote in an email. "And we're only talking about the next six months."

Novogratz said the surge in equities and tech stocks is similar to what happened with Bitcoins in 2017, when the cryptocurrency went from $8,000 to almost $20,000 within a couple of months before crashing.

Novogratz said in the interview that he was investing in gold and Bitcoins, which are benefitting from the cash coming into the stock market.

"We're at really dangerous valuations on the growth side, on the tech side," he said. "If it's Zoom or Tesla or Beyond Meat, whatever stock has a story, everyone's rushing in. That gets me worried."

Bluechip stocks such as Apple Inc. and Amazon.com Inc. hitting record highs have helped cushion the S&P 500 from the coronavirus effect with the gauge down about 0.2% over the past month. An equally weighted version of the index -- which gives Royal Caribbean Cruises Ltd. as much influence as Microsoft Corp. -- has tumbled roughly 6.4% over that same period.

"It's been a bull market that really has notscepticismy embraced," said Emily Roland, co-chief investment strategist at John Hancock Investment Management. "There's a certain amount of skepticism inherent in investors today, and it makes sense."

The Federal government's stimulus package has got a lot to do with the liquidity entering the market.

"It's harder to love a rally if it's more of a liquidity-driven phenomenon rather than earnings just doing fantastic," said Mark Heppenstall, Penn Mutual Asset Management's chief investment officer.
The Federal Reserve has largely restored bond market functioning with its intervention, but JPMorgan Chase & Co. warns that equity liquidity levels are far from normal.

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