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When Will Tesla, Bitcoin Or Another Market 'Bubble' Pop? - YouTube
Channel: CNBC
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Who wants to invest in some kind
of boring old blue chip stock
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when you can go and buy Dogecoin
or you can go buy some great
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meme stock and earn 400% on your
money in three hours.
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These retail investors are
cheering the gains with hashtags
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on Twitter like AMC strong and
Occupy Wall Street.
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And you just kind of hope, I
guess, that nobody gets hurt,
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but somebody is always going to
get hurt.
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Be afraid, be very afraid.
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When valuations heat up to the
point of boiling over, prices
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can come crashing down, and
those investors get burnt, like
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Gamestop.
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The quote unquote meme stocks
turned over Gamestop is the
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poster child. Dogecoin.
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You know currency nearing
tumbling over the past week
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alone. It's ahead of Elon Musk's
appearance on SNL.
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Yeah it's a hustle.
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Why didn't you say that, man?
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These are often referred to as
bubbles in the stock market.
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Oftentimes it's surge in
pricing, whether it's an asset,
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a sector of the market that's
driven by exuberant behavior.
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So, what bubble is next?
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There's a whole series of
bubbles going on right now.
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Investors are making money on
companies that make no money.
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That's never a good sign.
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But one by one we've checked off
every condition that a glorious
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bubble needs.
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And bubbles, bubbles are known
to pop or at the very least
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If it's not something that has
value and the price is going
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deflate.
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crazy on it, yes, it's probably
in a bubble.
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There is no spotlight that
shines like the bat sign that
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says we are now officially in
bubble territory. I wish there
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were.
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Here's a look at what bubbles
may be next a pop and where
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investors can find safety. Some
bubbles have already burst in
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2021. Take meme stocks as an
example.
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Meme stocks are silly. But we
take them seriously. They are
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indicative of something.
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Gamestop led the meme stock
march to record highs soaring
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from $17.25 a share on January 4
2021. To its all time high of
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$347 a share on January 27 2021.
That's nearly a 2,000% surge. It
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exploded Wall Street and it's
hedge funds. Gamestop is down
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about 50% from its high, retail
investors and hedge funds alike
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lost millions when that bubble
popped. Another meme stock that
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flew too close to the sun, the
more than 100 year old movie
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theater chain, AMC
Entertainment, AMC is now
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trading closer to $40 a share.
And that's down about 40% from
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its high of $62.55 on June 2
2021. Not to mention meme
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cryptocurrency.
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Dogecoin was started as a joke,
and has become less of a joke
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recently.
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Dogecoin hit a high of nearly 74
cents on May 7 2021. Since then
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it's down over 90%. Now it's
closer to 20 cents. It's
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important to note that not every
surge in prices equates to an
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asset or stock being in bubble
territory.
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Some of the other things that
kind of went parabolic in price
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doesn't necessarily mean that
they were a bubble.
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One example of this is what
happened to lumber prices. It's
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more of a supply and demand
story rather than a
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quintessential bubble.
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Spiking lumber prices were not
not part of our bubble thesis.
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Lumber is a thing. Lumber is
something that you can put your
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hands on. It's something that's
that that's got tangible value
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to it. It's part of a bigger
story about what was happening
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with the real estate market.
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Lumber prices hit a high of
$1,670 on May 7, now it's
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trading closer to $750. Experts
predict other bubbles may be
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forming but it's hard to say
what is really a bubble in the
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moment. The largest possible
bubble right now, according to
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GMO is in global growth stocks.
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We would urge caution, severe
severe caution, be afraid be
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very afraid of the valuations of
these growth companies.
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Today, over 25% of the US stock
market is trading at 10 times
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sales. And the number one story
we always hear is Amazon traded
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at 10 times sales, which is
true. The problem is today they
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can't all be Amazons and yet the
market is pricing it as all
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these companies trading at 10
think we are going to be just as
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successful as Amazon and history
is not on their side.
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One example, the most valuable
automaker in the world,Tesla.
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The electric carmaker recently
crossed the $1 trillion market
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cap threshold, with its stock
reaching an all time high of
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over $1,200 on November 1 2021.
That high came after Hertz
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announced it was buying some
Teslas.
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You know, when a rental fleet is
buying cars from an auto dealer,
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this is traditionally low margin
business. But you saw Tesla add
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almost 200 billion in market cap
in a week span when you when you
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see that type of euphoria, in
particular name, those could be
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potential examples of bubbles
soon to burst. You know, and I
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believe in the company, I think
there's a lot of great runway
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for them, but it's trading far
beyond intrinsic value is today.
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Shares of Tesla gained about 50%
in October 2021 and roughly 200%
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in the past 12 months.
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Not to mention all the all the
Bitcoins of the world, which are
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a couple of trillion dollars,
all based on confidence that
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other people will pay for what
you have
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Bitcoin right now doesn't have
fundamental value. So you can
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certainly classify that in
bubble territory. The investors
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in Bitcoin right now are betting
on the future of it. They're not
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betting on what's happening
today.
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Famed investor Michael Burry,
who is most well known for his
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prediction of the financial
crisis, told CNBC he isn't
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shorting Bitcoin, but he does
believe it's in a bubble. Then
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there are commodities that have
seen skyrocketing prices, kind
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of similar to the lumber bubble.
For example, steel prices spiked
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300% over pre pandemic levels,
at one point pricing, over
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$1,900.
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They have turned into a bubble.
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That's up from Steel's pre
pandemic price range between
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$500 and $800.
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There's a supply deficit that's
supported prices, and that
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supply deficit is easing, going
away. And as that happens, we
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should see prices move back
probably in a pretty violent
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manner.
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Meanwhile, there's a hotly
debated bubble, the housing
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market.
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The house price is multiple
family income, which is higher
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today than it was at the peak of
the housing bubble. And it's
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even higher than the US in
Australia, Canada, England, Hong
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Kong, Shanghai, you name it.
This is a global housing bubble.
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During the pandemic, home prices
climbed at a record pace. Now
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the median price of an existing
home is around $350,000. That's
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13% higher when compared with
October 2020.
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Home prices they're now
accelerating more than what you
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saw during the housing bubble.
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I would hesitate to say housing
in a bubble. I think we're
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starting to build more homes. So
I think some of these issues are
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supply chain issues. So once
once we kind of get past that I
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don't believe this is the same
story that maybe when we started
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the Great Recession.
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How does one make money in a
growth bubble?
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There is a world of opportunity
out there right now outside of
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the small little bubble sector
of tech innovation, disruption,
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cryptos that type of thing.
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Bernstein told CNBC he sees an
urgent need for investors in
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some of the most popular trades
to diversify.
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We think there's three things
one can be doing, the three
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things are exploit it, avoid it,
and dance around it. The exploit
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it piece is a strategy where you
literally are trying to exploit
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this very unique phenomenon.
These things happen. They don't
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happen often. But when they do
happen, it can be exciting. You
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can make lots of money in these
environments. The avoid it piece
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is looking to market neutral
type strategies, long, short,
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and other long, short strategies
in equity, other long, short
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strategies and bonds, other
long, short strategies and
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commodities in currencies. And
then dance around it, believe it
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or not, despite all our
warnings, there are some narrow
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pockets of I'll call them
traditional equities that look
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cheap, there aren't many. And
they're a little obscure, but
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invest in them.
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What I would focus on are value
oriented names, you want to look
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at companies that are
potentially cheaper, where the
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market is running right now. I
think those are the companies
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that will be able to stand the
test of time. There are areas
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financials there's also areas of
healthcare, like United Health
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is a name that we like that I
think will benefit and be able
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to handle a raising interest
rate environment. This won't be
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the first and last time we'll
see bubbles, they will continue
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to happen. Just part of
cognitively the way we work and
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operate. We see opportunities,
there's a herd mentality. And
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then there's a shift. You know,
oftentimes when you're the last
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to the party, those those are
the folks that really feel the
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pain. So it's an unfortunate
reality, but that's what we do
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as investors.
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