Here’s What Some Savvy Billionaire Old-School Money Managers Say About The Stock Market

Spoiler Alert: The Stock Market Bubble Is About To….

If you haven’t been paying attention, the stock market is on fire. It’s been hitting one new record high after another. While 75.6 million initial jobless claims were filed during the pandemic—representing about 47% of the nation’s workforce—some people are making fortunes betting on stocks.

To many investment professionals, the stock market is in a big bubble. The prices, relative to earnings, are ridiculously high, defying any semblance of reason or rationality. Day traders on the Robinhood app, TikTokers and Redditors are pouncing on much-discussed story stocks. The mass pile-on spurs FOMO (fear of missing out) as people hear their friends brag about how much money they’re making while at home and want in on it too. Tesla is a fantastic company that is run by genius Elon Musk—but it’s become a cult stock. I’ll get attacked for just writing this. The electric carmaker has a larger stock market valuation than its nine largest automaker competitors combined. The amount of cars produced by Tesla is far less that what the others crank out.

Carl Icahn, an old-school, cantankerous wheeler dealer who’s seen it all, said on CNBC,

“In my day, I’ve seen a lot of wild rallies with a lot of mispriced stocks, but there’s always one thing they all have in common.” Eventually, they hit a wall and go into a major painful correction and nobody can predict when it will happen. But when it does, “look out below.” Icahn disparaged the trope that “it’s different this time,” which is said during every stock market bubble—predicting that “it never turns out to be the truth” and it always ends up in tears and substantial losses.

Jeremy Grantham is a value-type investor. He looks for beaten-down stocks that trade at a big discount to what he believes they are truly worth. It’s a buy “when there is blood-in-the-streets” method of investing. It takes a lot of time and patience for the securities he purchases to blossom, others finally recognize their worth and his investments rapidly increase in value.

The cofounder and chief investment strategist of his Boston-based money management firm,    Grantham, Mayo, & Van Otterloo, said, “The long, long bull market since 2009 has finally matured into a full-fledged, epic bubble.” Grantham warns that there is “extreme overvaluation, explosive price increases…and hysterically speculative investor behavior. I believe this event will be recorded as one of the great bubbles in financial history, right along with the South Sea Bubble, 1929 and 2000.”

Leon Cooperman is a Wall Street legend. He’s been a bigshot at Goldman Sachs and uber-successful hedge fund honcho, who now focuses on managing his own billions of dollars.

Cooperman, in an interview with Forbes, said that he’s worried that the low-interest rate environment we’re in will ultimately lead to wanton speculation. He points out that the masses  jumping into Tesla stock and buying Bitcoin are clear signs of “speculative excess on Wall Street.” He’s concerned that Millennial newbie traders and Robinhood investors are participating in  “a lot of irrational things are being done in this market that on the surface don’t seem to make a lot of sense.” The cheerful-seeming Cooperman calmly predicts, “This market will end in tears.”

Jim Rogers is a crotchety southern gentleman who founded a hedge fund with the well-known and often-maligned George Soros. He made enough money in his mid-30s to retire and travel the world, living off his fortune from the Quantum hedge fund.

Rogers, who moved from the U.S. to Asia because he believes that’s where the future will be,  told the BBC, “As I look around the world, bonds are certainly in a bubble. Stocks in some countries are near highs. Property in many places is [in a bubble]. About the only asset class I see that’s still cheap, are commodities.”

He warns that “a bubble is developing.” Rogers said, “I’ve seen this movie before”—predicting that this current bull market run can’t last indefinitely.

Jeffrey Gundlach, also known as the “bond king,” is the founder and CEO of DoubleLine Capital. At an investment conference, Gundlach said the stock market is overvalued and due for a “significant” downturn this year or next.

He points out that the S&P—a benchmark for the stock market— has soared 75% over the past five years, while the economy hasn’t increased enough to support these lofty valuations.   Gundlach looks at the crazy run of the so-called “FAANG stocks”—which includes Facebook, Apple, Amazon, Netflix and Google-parent Alphabet—representing most of the gains. If you’d take them out of the equation, the growth of the S&P would’ve been flat over the past two years.

“There’s a myth that the world stock market is on some sort of bull market tear, but nothing could be further from the truth,” he told Forbes. “If you take the United States out, it absolutely hasn’t gone up in the last three years.” Even then, “the ‘super six’ is carrying the whole market on their back, and narrow markets aren’t very attractive.”

These investors are pretty savvy. Could they be saying this while simultaneously shorting the market (shorting is when you bet on stocks to go down and you make money when share prices plummet)? Maybe. It wouldn’t be the first time that Wall Streeters say one thing and do another to their benefit and the reader’s detriment.

History shows that the markets can be irrational for a long time. This means that this bubble can keep growing bigger and may not burst for a year or so. It’s also possible that some black swan event happens Monday and the market corrects or crashes.

I’m going to heed their advice and buy some puts (which makes money when stocks go down) and inverse ETFs (which also benefit when the market sinks) to hedge my bets.