Just over 70% of global fund managers expect strong inflation to be transitory, despite US prices surging 5% year-on-year in May, according to Bank of America's latest survey.
The BofA survey also showed investors' inflation expectations have peaked. A net 64% of respondents expected higher inflation over the next 12 months, down 19 points compared to May's survey and 29 points from April.
The closely watched survey offered another sign that investors are overcoming their fears of inflation, which have periodically unnerved markets this year.
Prices across the US economy surged 5% year-on-year in May, data showed last week. Yet when looked at month-on-month, consumer price index inflation rose just 0.6% in May, slower than the 0.8% increase in April.
Bond yields - which tend to rise and fall along with inflation expectations - have dropped to around three-month lows in the US. Meanwhile the S&P 500 has risen to record highs and the Nasdaq has climbed solidly after falling in February.
The BofA survey showed investors bought back into tech stocks at a rapid rate in June, but cut their exposure to companies that tend to do better when growth and inflation are higher, such as utilities and banks. However, they were still keen on cyclical stocks and commodities overall.
"Several of the factors pushing up inflation recently are likely to fade in coming months, including energy prices," Mark Haefele, chief investment officer at UBS Wealth Management, said in a recent note.
"We agree with the [US Federal Reserve] that elevated inflation pressures will prove short-lived," he said. "We do not expect a more sustained disruption to equity markets."
Bank of America polled 224 managers with more than $660 billion under management for the survey.
The US market regulator has warned investors about investing in funds with exposure to bitcoin futures, saying the market is volatile, unregulated and has the potential for fraud.
The Securities and Exchange Commission released a notice on Thursday urging those considering bitcoin futures funds "to weigh carefully the potential risks and benefits of the investment." The notice was issued with the Commodity Futures Trading Commission.
"Among other things, investors should understand that bitcoin, including gaining exposure through the bitcoin futures market, is a highly speculative investment," it said.
"As such, investors should consider the volatility of bitcoin and the bitcoin futures market, as well as the lack of regulation and potential for fraud or manipulation in the underlying bitcoin market." Futures are contracts that allow people to speculate on the future bitcoin price.
Regulators are stepping up their focus on bitcoin and other cryptocurrencies, which boomed in the first five months of the year before falling sharply in May.
Bitcoin traded at around $37,500 on Friday, around 42% below April's record high, giving a sense of the volatility of the asset. Heightened scrutiny from Chinese regulators is one factor in bitcoin's recent decline.
The SEC's warning followed the suggestion from the top global banking regulator for tough new rules for financial institutions that have exposure to bitcoin.
Rule-makers and central banks have been warning for months about the dangers of cryptocurrencies because of growing concern that investors could get burnt in the bitcoin boom.
Analysts have said that the SEC's concerns about the dangers of bitcoin investments make it unlikely that the regulator will approve crypto exchange-traded funds any time soon.
Osprey Funds founder Greg King told CNBC on Monday he thinks a bitcoin ETF in the US could come in 2022.
King, who plans to launch a bitcoin ETF in the US, said: "Personally, I think if something happens, it's more likely in 2022. It's just really getting going. These things take time."
Like other central banks around the world, the ECB has been keeping a close eye on inflation. As with the Fed, the central bank thinks sharp price rises should be temporary as the economy adjusts to life after the coronavirus pandemic.
ECB boss Christine Lagarde said in May that she expected inflation to return to lower levels next year.
The central bank is set to release a new set of economic predictions, expected to reflect a recovery in the eurozone economy in recent months as COVID-19 vaccinations have picked up and restrictions have been gradually eased in many countries.
JPMorgan sees worrying signs in the bitcoin futures market.
The bank's strategists, led by Nikolaos Panigirtzoglou, said the fact that bitcoin futures have been trading at a discount to the spot price - technically known as backwardation - is a sign of weak demand from big players.
"We believe that the return to backwardation in recent weeks has been a negative signal pointing to a bear market," the strategists said in a note on Wednesday.
"This is an unusual development and a reflection of how weak bitcoin demand is at the moment from institutional investors that tend to use regulated CME futures contracts to gain exposure to bitcoin." Futures are contracts that oblige the buyer to purchase an asset at a set price at a fixed date in the future.
Bitcoin has rebounded over the last two days and was up around 4% to $37,915 on Thursday. But it was nonetheless still 40% lower than April's record high of close to $65,000.
JPMorgan's strategists said their outlook for bitcoin was negative. They said another worrying signal was that bitcoin's share of the total crypto market fell sharply during April and May from around 60% towards 40%.
Bitcoin's lower market share is "a bearish signal carrying some echoes of the retail-investor-driven froth of December 2017," they said. Amateur investors moved heavily into alternative coins as the crypto world boomed in 2017, but quickly withdrew from the market as it dropped sharply over 2018.
JPMorgan said the bitcoin futures curve was also in backwardation for most of 2018, when the cryptocurrency slid from around $15,000 at the end of 2017 to below $4,000 by the end of the next year.
Regulatory pressures are also building. On Thursday, the top global banking regulator recommended strict new rules for financial institutions holding bitcoin.
June 5, 2021Harry RobertsonUncategorizedComments Off on Jeremy Grantham said US stocks are heroically overpriced, copper should shoot higher, and that he had an ‘overprivileged’ lockdown in a recent interview. Here are the 14 best quotes.
Jeremy Grantham said US stocks are heroically overpriced but copper should shoot higher.
The legendary cofounder of GMO also talked about "cynical" oil companies in a recent interview.
And he said he had an "overprivileged" lockdown on an estate with 50 acres of woodland.
Legendary investor Jeremy Grantham said US stocks are hugely overpriced, predicted copper prices should shoot higher in the coming years, and that he had an "overprivileged" lockdown in an interview at the Morningstar Investment Conference Australia this week.
The cofounder of asset management firm GMO also ripped into the major oil companies, saying they're too cynical to engage with. And the 82-year-old said the SPAC boom and the Nasdaq had probably peaked.
Here are the 14 best quotes from the interview.
On the investing landscape
1. "The developed world is merely overpriced, no big deal on its own, but the US is heroically overpriced, and emerging markets is actually fairly cheap… I have complete confidence that if you bought the intersection, cheap emerging market stocks, that you would get a perfectly handsome 10- or 20-year return. And I am pretty darn confident that you will not get a handsome ten-year return from say the S&P 500 or Nasdaq."
2. "[The] Nasdaq has, by the way, peaked quite a long time ago, two months ago.... This time, my guess is the super SPACs peaked in January, the Nasdaq peaked in February. And maybe in a few months, the termites will get to the rest of the market."
3. "The super crazies are really anything to do with electrification. EVs, for sure, Tesla is the king of that group, [and] they're down 30%. The SPAC index is down 30%, the last 10 SPACs having announced a deal are now [trading at] less than the $10 that they do these deals at."
4. "There is no way copper will not rise hugely from here because of the electrification of everything. And that goes for cobalt, that goes for lithium. And all of the metals except iron and aluminum are really scarce… You have to be reconciled in the long run for a different world of commodity prices."
On dangers for markets
5. "The higher an asset price is, the lower the return. So having high-priced assets is great for retirees, old folks like me selling off my assets. But for everybody else, it means you compound your wealth more slowly… So I welcome lower asset prices, which I'm confident will come."
6. "It won't take bad news. It won't take a thoroughly bad economy to start bringing this market down. It will take a perfectly good economy and perfectly optimistic outlook, but a little less than it used to be a week ago, a month ago." - Grantham also spoke of "pessimism termites" that would start to eat away at investor confidence.
7. "You look around and you find that real estate is suddenly pretty bubbly in almost every interesting market in the world… You can't keep an asset class like housing, where the house doesn't change, and you're just marking it up in real terms year after year. Eventually, there'll be a day of reckoning."
8. "Don't pull a Japan. Japan had the biggest bubble in history in land and real estate, bigger than the South Sea Bubble in my opinion. It also had the biggest equity bubble of any advanced country. [Now] 32 years later their land is not back to where it was in 1989 and their stock market is not back in nominal dollars to where it was in 1989. And that's a perfect example, as the higher you go, the longer and greater the fall."
9. "We had a totally overprivileged existence. We're down in beautiful countryside with 50 acres of our own of woodland... And I did quite a lot more research than normal because I wasn't wasting my time on airplanes. So my carbon footprint was magnificent, and I was reduced to worrying about rather small things like amortizing my tie supply. If I could wear three at a time, I would."
On the oil companies
10. "The oil industry ran a deliberate campaign of obfuscation, political propaganda, to deliberately mislead the world… That should be criminal. It certainly has had a very damaging effect… It's cost the world perhaps as much as 10 years of progress on climate change action and government support and sensible regulation."
11. "I think engagement for the routine concerns [with companies over climate change] is the way to go… But with oil companies, I think they're simply too cynical and too clever for engagement to count."
On value investing and venture capital
12. "[Value investing] has had a brutal 11 years. It was the worst 10 years in history for value versus growth. And then last year was by far the worst single year. So you had the worst decade followed by the worst single year… We've had a lot of problems over the last 11 years."
13. "American capitalism seems to me past its prime, a little fat and happy, not aggressive enough. There's only half the number of people working for firms [that are] one and two years old than there were in 1975. So we're losing some of our dynamism."
14. "But there is one thing where the US is still exceptional and that is venture capital. And venture capital is really attracting the best people these days. They don't go to Goldman Sachs to write algorithms. They go into venture capital or to start a new firm, and they should."
The US economy is set to grow at the fastest rate since 1984 this year thanks to government stimulus and the speedy rollout of coronavirus vaccines, the Organisation for Economic Co-operation and Development (OECD) has said.
In its latest economic outlook, the OECD group of rich countries said US gross domestic product would grow 6.9% in 2021, after contracting 3.5% in 2020. That would be the biggest increase since 1984, according to World Bank figures.
The OECD's new US forecast was an upgrade from March's prediction of 6.5% growth, which was itself a sharp improvement on a December estimate of 3.2%.
The successive upgrades reflect the impact of both President Joe Biden's $1.9 trillion stimulus bill and of vaccines, which are allowing states to reopen their economies. More than half of the US population has now had at least one shot.
"Substantial additional fiscal stimulus and a rapid vaccination campaign have given a boost to the economic recovery," the OECD analysts wrote in their report.
The authors said the recovery had picked up speed: "Indicators of consumption activity have risen, with strong household income growth and a gradual relaxation of containment measures boosting spending."
They added: "The reopening of the economy due to widespread vaccination of the population will enable activity in more sectors to return to normal."
The OECD is a global organization that promotes growth and trade, with 38 member countries. Its economic forecasts are closely watched.
It predicted that the global economy would grow 5.8% in 2021, up from its March forecast of 5.6%.
Yet the global recovery will be highly uneven, and the pandemic will hit some countries' living standards hard, according to OECD chief economist Laurence Boone.
"It is with some relief that we can see the economic outlook brightening, but with some discomfort that it is doing so in a very uneven way," she said in an introduction to the report.
"It is very disturbing that not enough vaccines are reaching emerging and low-income economies. This is exposing these economies to a fundamental threat because they have less policy capacity to support activity than advanced economies."