The president of Smead Capital Management addressed the topic of current trends of the US stock market in an interview with CNBC.
Will millennials be to blame for US stock market failure?
Cole Smead, a seasoned fund manager and head of Smead Capital Management stock market investment firm, disclosed that “young, dumb” investors have damaged the US stock market, as they have onboarded the stocks and bonds bandwagon. He expressed his disapproval and said that the high valuation levels currently seen on the market were an example of “stock market failure,” as millennials have taken on oversized risks in equities. He said in a CNBC interview:
“They are buying bullish call options that expire inside two weeks. There was ($500 billion) of bullish call options bought in a four-week stretch by small retail traders. In ’99 it was $100 billion, in ’07, it was $100 billion.”
The craze for buying into US stocks seem to have reached highs amid the coronavirus pandemic, as numerous investors have been seeking a way to secure their funds through hedges. According to Smead, when US stocks plummet, “it will get ugly.” The Smead Capital Management president predicted that the Federal Reserve would not be able to save the stock market.
Though the seasoned investor has expressed his disapproval on the younger generation riding the stocks bandwagon while having no strategic investment plan, he said that they were not entirely to blame. He called out baby boomers as well for pouring unrealistic “premiums” into traditional stock market winners, such as tech giant Microsoft.
Smead predicted that Microsoft stocks will reap no profits for investors who have diversified their funds that way. He told CNBC:
“Microsoft is a wonderful company. But at 40 times earnings, there is a 0% chance of that producing wealth for someone over the next 10 years that will meet their needs.”
What about Bitcoin?
Other market experts have expressed similar opinions as Smead. Many have observed that the US dollar will continue its plummeting trajectory, as the Federal Reserve is planning to push inflation rates above the target 2% and it is on the verge of releasing a second stimulus package to alleviate the coronavirus-induced financial crisis.
With the plans to do so, many have diversified their funds and invested in Bitcoin (BTC) as a hedge. Even huge companies have secured their assets by investing a portion of their treasury reserve into BTC, notably MicroStrategy, Square, and Stone Ridge Asset Management, among others.
The crypto move will likely lead other investors to consider Bitcoin as a hedge if they haven’t done so already. JPMorgan analysts have said that among younger investors and older ones, the younger generation had a higher tendency to favor cryptocurrencies and tech-related stocks, as the risk that comes with high volatility did not deter them.
Strategists also said that in the near future, Bitcoin may undergo selling pressure, as it is currently overvalued if one were to assess it as a commodity. However, Bitcoin’s value was sure to gain in the long term, according to JP Morgan Chase & Co experts.
At the time of writing, the digital gold cryptocurrency is trading at around $11,248 on CoinGecko and has fallen back slightly since its bullish behavior observed recently. Market bulls are anticipating its next bull run.
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