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- kravokravo
  ·2021-06-23
  Interesting
  Bubble Expert Jeremy Grantham Addresses ‘Epic’ Equities Euphoria
  It’s been just over a year since the last stock market crash, and investors are wondering if another
  Bubble Expert Jeremy Grantham Addresses ‘Epic’ Equities Euphoria
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- kravokravo
  ·2021-06-21
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  Troubled Companies Take Page From AMC Playbook in Seeking Stock-Market Lifelines
  The frenzied stock-buying activity that may have saved AMC Entertainment Holdings Inc.from bankruptcy is opening up a potential escape hatch for other troubled borrowers as well.More companies with steep financial challenges are seeking a lifeline from equity markets, eager to capitalize on thesurge of interest in stock buyingfrom nonprofessional investors. Earlier this month, coal miner Peabody Energy Corp.,offshore drilling contractor Transocean Ltd.and retailer Express Inc.,all announced plan
  Troubled Companies Take Page From AMC Playbook in Seeking Stock-Market Lifelines
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09:53","market":"us","language":"en","title":"Bubble Expert Jeremy Grantham Addresses ‘Epic’ Equities Euphoria","url":"https://stock-news.laohu8.com/highlight/detail?id=1115637073","media":"Bloomberg","summary":"It’s been just over a year since the last stock market crash, and investors are wondering if another","content":"<p>It’s been just over a year since the last stock market crash, and investors are wondering if another one is on the way. With economic momentum slowing as the effects of fiscal stimulus wear off, it’s no surprise that equities seem to be fading, too. Meanwhile, labor shortages and stretched supply chains remain lingering issues, while inflation is starting to be passed on to consumers. It seems like this should be a risk-off environment. But retail traders appear to be the only investors having a good time. Does that mean we’re in a bubble and due for a pop?</p>\n<p>Jeremy Grantham, market historian and co-founder of the Boston investment firmGMO, debates the subject with Bloomberg Opinion’s John Authers. His remarks have been edited and condensed.</p>\n<p>Robert Shiller, whom you’ve praised, compared the rise in speculative assets like Bitcoin and NFTs to the fad of Beanie Babies. But he declined to say that there’s a bubble in stocks. What elements of a bubble do you see in a stock market that crashed pretty hard just one year ago, and why would it crash again?</p>\n<p>GRANTHAM: First, the Covid crash is quite distinct from a classic long bull market ending, as they usually do in a bubble and bust. As a sharp external effect, it was more like the 1987 technical crash caused by portfolio insurance: a short hit and a sharp recovery. Looking back, although they were painful at the time, they were mere blips on the longer-term buildup of confidence toward a market peak.</p>\n<p><img src=\"https://static.tigerbbs.com/e5c3a701908cefae1e6731747c1dee45\" tg-width=\"930\" tg-height=\"523\" referrerpolicy=\"no-referrer\"></p>\n<p>The last 12 months have been a classic finale to an 11-year bull market. Peak overvaluation across each decile by price to sales, so that the most expensive 10% is worse than it was in the 2000 tech bubble and the remaining nine deciles are much more expensive. all measures of debt and margin are at peaks. Speculative measures such as call option volumes, volume of individual trading and quantities of over-the-counter or penny stocks are all at records.</p>\n<p>Robinhood and commission-free retail trading have driven a surge of new investors with no experience of past bubbles and busts. So the scale of craziness is larger. Cryptocurrencies represent over $1 trillion of claims on total asset value while adding nothing -- pure dilution.</p>\n<p>Quantumscape, my own investment from over seven years ago, is a brilliant research lab. For a minute, it sold above GM or Panasonic’s market value, even with no sales.</p>\n<p>Finally, Dogecoin, AMC and Gamestop -- worth billions in the market and not even pretending to be serious investments. AMC is up nearly 10 times since before the pandemic even though box office is down nearly 80%! Dogecoin was created as a joke to make fun of cryptocurrencies being worthless, and not only has it taken off, but it’s such a success that second-level joke cryptocurrencies making fun of Dogecoin have gone to multibillion-dollar valuations. Meanwhile, other cryptocurrencies have seen success purely on the basis of their scatological names.</p>\n<p>“Meme” investing -- the idea that something is worth investing in, or rather gambling on, simply because it is funny -- has become commonplace. It’s a totally nihilistic parody of actual investing. This is it guys, the biggest U.S. fantasy trip of all time.</p>\n<p>In January, you wrote “all bubbles end with near universal acceptance that the current one will not end yet.” This reason this time is the belief that interest rates will be kept near zero forever. But members of the Fed are penciling in a couple of rate hikes by the end of 2023. What would you do now if you were the Fed chair?</p>\n<p>GRANTHAM: All four chairmen post-Volcker have underestimated the potential economic damage from inflated asset prices, particularly housing, deflating rapidly. The role of higher asset prices on increasing inequality also hasn’t been considered. Asset bubbles are extremely dangerous.</p>\n<p>As Fed chair, I would have moved to curtail U.S. stocks in 1998-1999 and housing in 2005-2007. Similarly, today I would act to deflate all asset prices as carefully as I could, knowing that an earlier decline, however painful, would be smaller and less dangerous than waiting -- the analogy of jumping off an accelerating bus seems a suitably painful one.</p>\n<p>This current event is particularly dangerous because bonds, stocks and real estate are all inflated together. Even commodities have surged. That perfecta and a half has never happened before, anywhere. The closest was Japan in 1989 with two hyper-inflated asset categories: record land and real estate, worse than the South Sea bubble, together with record P/E’s in stocks recorded at the time as 65x. The consequences for the economy were dire, and neither land nor stocks have yet returned to their 1989 peaks!</p>\n<p>The pain from loss of perceived value will only get more intense as prices rise from here. In short, the Fed since Volcker has been pretty clueless and remains so. What has been more remarkable, though, is the persistent confidence shown toward all of these four Fed bosses despite the demonstrable ineptness in dealing with asset bubbles.</p>\n<p>You’ve made it clear timing the end of a bubble is challenging. But you’ve also pointed to this one bursting in “late spring or early summer” -- in other words, right now. Are we still on the cusp of a crash? What can we expect the fall to look like? And if the market should drop, how do you decide when to buy back in?</p>\n<p>Checking all the necessary boxes of a speculative peak, the U.S. market was entitled historically to start unraveling any time after January this year. One odd characteristic of the three biggest bubbles in the U.S. -- 1929, 1972 and 2000 -- is that the very end was preceded byblue chips outperforming more aggressive, higher beta stocks. In 2000, for five months from March, tech-related stocks crashed by 50% as the S&amp;P 500 was unchanged, and the balance of the market was up over 15%. In 1972, before the biggest bear market since the Depression, the S&amp;P outperformed the average stock by 35%. And in 1929, the effect was even more extreme, with the racy S&amp;P low-priced index down nearly 30% before the broad market crashed.</p>\n<p>Today, the Nasdaq and Russell 2000 are below the level of Feb. 9 four and a half months later, and many of the leading growth stocks are down. (Tesla has fallen from $900 to $625.) The SPAC ETF is down 25% since February. Meanwhile, the S&amp;P has chugged higher by 8% since Feb. 9.</p>\n<p>Probably the asset that most resembles the Nasdaq in 2000 is Bitcoin, and it has been cut in half over the last several weeks. In 2000, the Nasdaq crashing 50% was a perfect warning shot for the broad market six months in advance.</p>\n<p><img src=\"https://static.tigerbbs.com/c86538b523b4f0d8a0b4391363e62780\" tg-width=\"930\" tg-height=\"523\" referrerpolicy=\"no-referrer\"></p>\n<p>I willadmit, though, that the extent and speed of the new stimulus program was surprising and was guaranteed to help a bubble keep going. Equally surprising was the success of the vaccination program in much of the developed world. Together, they should make the bubble longer-lived and bigger.</p>\n<p>What it will not do, though, is change the justifiable market value that will be reached one day. Therefore, as always, the higher we go the longer and deeper the pain. Getting back in is technically easy but psychologically difficult: Start to average in as the market reaches more reasonable levels, say 18x earnings.</p>\n<p>AUTHERS: To illustrate the point Jeremy made, the difference in behavior between the Nasdaq 100 and S&amp;P 500 in 2000 was dramatic. (And there were plenty of far more stratospheric pure dot-com companies outside the Nasdaq 100 that peaked at the same time.) The S&amp;P still carried on horizontally for two or three months before nose-diving, much as it has moved horizontally for the past two months.</p>\n<p><img src=\"https://static.tigerbbs.com/979b24b3fb1bc843f43dc3fa69b7ee67\" tg-width=\"930\" tg-height=\"523\" referrerpolicy=\"no-referrer\"></p>\n<p>How similar do things look now? It’s always a problem putting Bitcoin on a chart with anything else, because its performance is so remarkable. But yes, there is something rather similar about how the cryptocurrency has dived while the S&amp;P moves sideways.</p>\n<p><img src=\"https://static.tigerbbs.com/21c319ea2658a34a6e86d6f2c71480ad\" tg-width=\"930\" tg-height=\"523\" referrerpolicy=\"no-referrer\"></p>\n<p>Note that there was already an uncomfortable similarity even before the Bitcoin price dropped below $30,000 this morning.</p>\n<p>One more analogy with how the most exciting speculative assets of this era seem already to have peaked: The SPAC (special purpose acquisition company) boom topped in February. So did the spectacularly successfulARK Innovation ETFrun by Cathie Wood, which is full of exciting plays on future technology investments. These are arguably better comparisons to the dot-com era, when companies went public without ever having generated earnings or even sales, and when there was great excitement about new technology. That excitement has proved to be justified two decades later, but it didn’t stop a lot of people from losing money in 2000.</p>\n<p><img src=\"https://static.tigerbbs.com/e6f987da4e94f7535f0eb33f1735d2d5\" tg-width=\"930\" tg-height=\"523\" referrerpolicy=\"no-referrer\"></p>\n<p>To continue on the issue of timing the stock market, it seems to me that timing the bond market could be critical. For years, the standard point made by equity bulls has been that even if share prices look historically expensive, bonds appear even more extreme, Can we see a true unwinding of the stock-market bubble without first witnessing an unwinding of the bond bubble?</p>\n<p>On that issue, one reader reminded me of a passage from Jeremy’s 2017 letter for GMO, which brought attention to the fact that profit margins and the multiple that people were prepared to accept moved higher in the mid-1990s. Here are the charts:</p>\n<p><img src=\"https://static.tigerbbs.com/01f4f508a8d734f99a00c38518990554\" tg-width=\"800\" tg-height=\"526\" referrerpolicy=\"no-referrer\"></p>\n<p>Source: GMO</p>\n<p><img src=\"https://static.tigerbbs.com/d1087d94807b28a3f589ca9b83ad5b3b\" tg-width=\"1000\" tg-height=\"664\" referrerpolicy=\"no-referrer\"></p>\n<p>Source: GMO</p>\n<p>There are of course a lot of arguments about what caused this. Perhaps the most popular explanation is that the Federal Reserve under Alan Greenspan lost the plot and started propping up the stock market, deliberately or otherwise. It was very low rates that enabled higher multiples and higher profit margins. But, of course, we have even lower real rates today.</p>\n<p>This was what Jeremy said four years ago:</p>\n<blockquote>\n “The single largest input to higher margins, though, is likely to be the existence of much lower real interest rates since 1997 combined with higher leverage. Pre-1997 real rates averaged 200 bps higher than now and leverage was 25% lower. At the old average rate and leverage, profit margins on the S&amp;P 500 would drop back 80% of the way to their previous much lower pre-1997 average, leaving them a mere 6% higher. (Turning up the rate dial just another 0.5% with a further modest reduction in leverage would push them to complete the round trip back to the old normal.)”\n</blockquote>\n<blockquote>\n “So, to summarize, stock prices are held up by abnormal profit margins, which in turn are produced mainly by lower real rates, the benefits of which are not competed away because of increased monopoly power, etc. What, we might ask, will it take to break this chain? Any answer, I think, must start with an increase in real rates.”\n</blockquote>\n<p>The issue now is that real rates are historically low and could easily rise and trigger a rush for the exits. We also have more leverage and more monopoly concentration than we did four years ago.</p>\n<p><img src=\"https://static.tigerbbs.com/89600f321aa62b612359d9d78652e6a3\" tg-width=\"930\" tg-height=\"523\" referrerpolicy=\"no-referrer\"></p>\n<p>On Jeremy’s argument from 2017, real rates might not even need to go positive to burst the bubble in stocks. To what extent do low rates keep the bubble inflated? And how much of a “tantrum” in real yields would be needed to bring down the stock market?</p>\n<p>GRANTHAM: Even if we stay in the recent, post-2000 low-interest-rate regime, a full scale psychological bubble can still burst as they did in 2000 and 2007 (including housing). Although, to be sure, they fell to higher lows than before and recovered much faster.</p>\n<p>Still, an 82% decline in the Nasdaq by 2003 was no picnic. In the longer run, a low interest-rate regime promotes lower average yields (and higher average prices) across all assets globally. However, I strongly suspect that there will be a slow irregular return to both higher average inflation and higher average real rates in the next few years, even if they only close half the difference or so with the pre-2000 good old days. Reasons could include resource limitations, energy transition and profound changes in the population mix -- with more retirees and fewer young workers throughout the developed world and China, which collectively could promote both inflation and higher rates.</p>\n<p>There is still so much cash in the system from fiscal stimulus to the Fed as buyer of last resort. Several clients have asked whether it’s fair for stock bulls to fall back on this dynamic as a reason for there to be room to run. In short, is the liquidity argument valid?<img src=\"https://static.tigerbbs.com/9b70f8872fdbdf0905f070287a8501bf\" tg-width=\"930\" tg-height=\"523\" referrerpolicy=\"no-referrer\"></p>\n<p>GRANTHAM: First, let me make it clear that I am not an expert on money or liquidity. However, although the rate of increase in M2, for example, is extremely high, the growth rate has declined in recent weeks precipitously, about as fast as ever recorded from roughly 18% year over year to 12%.</p>\n<p>Just as bull markets turn down when confidence is high but less than yesterday, so the second derivative determines the effect of liquidity. The best analogy is the fun ping-pong ball supported in the air by a stream of water. The water pressure is still very high and the ball is high, but the ball has dropped an inch or two.</p>\n<p>Moving to asset allocation, which several of our readers have asked about, is the traditional 60/40 portfolio still the ideal strategy? And what do you think about alternative hedges like mega-cap tech stocks or even Bitcoin as a piece of a portfolio?</p>\n<p>GRANTHAM: Asset allocation is particularly difficult today, with all major asset classes overpriced. With interest rates at a 4,000 year-low (see Jim Grant), 60-40 seems particularly dangerous. Two sectors are at historical low ratios however: Emerging-market equities compared the S&amp;P and value stocksvs. growth.</p>\n<p>In addition to a cash reserve to take advantage of a future market break, I would recommend as large a position in the intersection of these two relatively cheap sectors -- value stocks and emerging market equities -- as you can stand. I am confident they will return a decent 10%-20% a year and perhaps much better.</p>\n<p><img src=\"https://static.tigerbbs.com/61119ce01ded6da4506e3464049c2d54\" tg-width=\"930\" tg-height=\"523\" referrerpolicy=\"no-referrer\"></p>\n<p>The S&amp;P is likely to do poorly in comparison. Bitcoin should be avoided. Cryptocurrencies total over $1 trillion of claims on real global assets while adding nothing to the GDP pool --pure dilution.</p>\n<p>Our family environmental foundation is making a big play (75%!) in early-stage VC, including green VC. VC seems to be by far the most dynamic part of a generally fat, happy and conservative U.S. capitalism. The star players today -- the FANG types -- have all fairly recently sprung out of the VC industry, which is the U.S.’s last, best example of real exceptionalism. However, history suggests they will not be spared in a major market break and indeed may already be showing some relative weakness.</p>\n<p>AUTHERS: On emerging-markets’ value, it’s worth pointing out that it’s not as “out there” or merely theoretical as a lot of detractors suggest. It gives an extremely bumpy ride, of course, but over the last 20 years the MSCI EM Value index has handily beaten the S&amp;P 500 in total-return terms.</p>\n<p><img src=\"https://static.tigerbbs.com/64a2794abeadade3dfff342413c0e75d\" tg-width=\"930\" tg-height=\"523\" referrerpolicy=\"no-referrer\"></p>\n<p>Add to this the fact that it starts compellingly cheap now and it has very real appeal -- for those with strong constitutions who are prepared to wait.</p>\n<p>Reading Jeremy’s response, I think it might also be important to point out that cash isn’t just there as a lead weight in a portfolio. It obviously gives you no kind of decent return at present, but it does have value in its optionality. The idea of carrying cash now is not to stay in it for 20 years at the same weighting, but to give yourself the opportunity to buy more conventional growth assets once they are at a reasonable price. So I suppose this is a caution against the notion of doing all your timing via automatic rebalancing -- you have to be ready to jump in to take opportunities.</p>\n<p>You received the CBE (Commander of the Most Excellent Order of the British Empire) from Prince William in 2016 for your work on climate change, which is now a popular investing theme. How does an average investor pursue green investing when some people believe a “green bubble” is emerging? Examples include price surges on electric-vehicle makers or ESG ETFs.</p>\n<p>GRANTHAM: Well, what do you know? GMO has an excellent climate change fund that tries hard to avoid the crazy parts. Yes, there are some bubbly stuff in the green/ESG area, as there is everywhere. But the wind of government support and corporate recognition is behind greening the economy. So lithium and copper, for example, may be at temporary highs. But in the long term, they are very scarce resources critical to decarbonizing, and their prices will go much higher.</p>\n<p>Similarly, EVs may get ahead of themselves and suffer -- Amazon was down 92% by 2002. But some will go very much higher. (The closer you can get to very early stage VC, the more you avoid the bubble, although sadly not entirely. Recycling the limited resources above, for example, may be one of the great opportunities that exist.)</p>\n<p><img src=\"https://static.tigerbbs.com/90768d03b32314264aaa3b29bd590128\" tg-width=\"930\" tg-height=\"523\" referrerpolicy=\"no-referrer\">Talking about bubbles and timing them, is there validity to Goetzmann’s ideas? As bubbles are hard to identify and time, should we just opt for systematic rebalancing, which at least ensures you sell sell high and buy low to some extent?</p>\n<p>AUTHERS: There is a contrarian literature suggesting that there is no such thing as a bubble that we can spot in real time before it bursts. To quote Yale University’s Will Goetzmann, in a 2015 paper called “Bubble Investing: Learning from History”, a bubble is a boom that goes bad, “but not all booms are bad.”</p>\n<p>I’d like to put Goetzmann’s ideas to Jeremy. He defined a bubble as an index that doubles in price in a year or (a softer version) in three years, and looked at national indexes going back a century. His figures, which I quoted here, found 72 cases of a market doubling in a year. In the following year, six doubled again, and three halved, giving back all their gains: Argentina in 1977, Austria in 1924 and Poland in 1994.</p>\n<p>For doubling in three years, he found 460 examples. In the following five years, 10.4% of them halved. The possibility of halving in any three-year period, regardless of what had come before, was lower than this but not dramatically so: 6%. Crashes where bubbles as he defined them burst and gave up all their gains were rarer than booms where the index went on to double again.</p>\n<p>GRANTHAM: Our main study of bubbles eventually covered 330 examples including commodities. To do this on a consistent basis, we defined a bubble on price series only as a two-sigma event, the kind that would occur randomly every 44 years. (In our data its every 35 years -- pretty close.)</p>\n<p>Using only price trend and using only outliers seemed, then and now, better than using arbitrary price changes, which can double or triple from extreme lows, like 1931 or 1982, and mean nothing. Yes, we found a few paradigm shifts -- almost all small, such as moving from developing status to developed. None, other than oil in the first OPEC crisis, were significant. All the other major bubbles returned to trend eventually.</p>\n<p>For the great bubbles by scale and significance, we also noticed that they all accelerated late in the game and had psychological measures that could not be missed by ordinary investors. (Economists are a different matter.) The data, like today, is always clear, just uncommercial and inconvenient for the investment industry and often psychologically impossible to see for many individuals.</p>","source":"lsy1584095487587","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Bubble Expert Jeremy Grantham Addresses ‘Epic’ Equities Euphoria</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nBubble Expert Jeremy Grantham Addresses ‘Epic’ Equities Euphoria\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-06-23 09:53 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://www.bloomberg.com/news/articles/2021-06-22/bubble-expert-jeremy-grantham-addresses-epic-equities-euphoria><strong>Bloomberg</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>It’s been just over a year since the last stock market crash, and investors are wondering if another one is on the way. With economic momentum slowing as the effects of fiscal stimulus wear off, it’s ...</p>\n\n<a href=\"https://www.bloomberg.com/news/articles/2021-06-22/bubble-expert-jeremy-grantham-addresses-epic-equities-euphoria\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{".IXIC":"NASDAQ Composite"},"source_url":"https://www.bloomberg.com/news/articles/2021-06-22/bubble-expert-jeremy-grantham-addresses-epic-equities-euphoria","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1115637073","content_text":"It’s been just over a year since the last stock market crash, and investors are wondering if another one is on the way. With economic momentum slowing as the effects of fiscal stimulus wear off, it’s no surprise that equities seem to be fading, too. Meanwhile, labor shortages and stretched supply chains remain lingering issues, while inflation is starting to be passed on to consumers. It seems like this should be a risk-off environment. But retail traders appear to be the only investors having a good time. Does that mean we’re in a bubble and due for a pop?\nJeremy Grantham, market historian and co-founder of the Boston investment firmGMO, debates the subject with Bloomberg Opinion’s John Authers. His remarks have been edited and condensed.\nRobert Shiller, whom you’ve praised, compared the rise in speculative assets like Bitcoin and NFTs to the fad of Beanie Babies. But he declined to say that there’s a bubble in stocks. What elements of a bubble do you see in a stock market that crashed pretty hard just one year ago, and why would it crash again?\nGRANTHAM: First, the Covid crash is quite distinct from a classic long bull market ending, as they usually do in a bubble and bust. As a sharp external effect, it was more like the 1987 technical crash caused by portfolio insurance: a short hit and a sharp recovery. Looking back, although they were painful at the time, they were mere blips on the longer-term buildup of confidence toward a market peak.\n\nThe last 12 months have been a classic finale to an 11-year bull market. Peak overvaluation across each decile by price to sales, so that the most expensive 10% is worse than it was in the 2000 tech bubble and the remaining nine deciles are much more expensive. all measures of debt and margin are at peaks. Speculative measures such as call option volumes, volume of individual trading and quantities of over-the-counter or penny stocks are all at records.\nRobinhood and commission-free retail trading have driven a surge of new investors with no experience of past bubbles and busts. So the scale of craziness is larger. Cryptocurrencies represent over $1 trillion of claims on total asset value while adding nothing -- pure dilution.\nQuantumscape, my own investment from over seven years ago, is a brilliant research lab. For a minute, it sold above GM or Panasonic’s market value, even with no sales.\nFinally, Dogecoin, AMC and Gamestop -- worth billions in the market and not even pretending to be serious investments. AMC is up nearly 10 times since before the pandemic even though box office is down nearly 80%! Dogecoin was created as a joke to make fun of cryptocurrencies being worthless, and not only has it taken off, but it’s such a success that second-level joke cryptocurrencies making fun of Dogecoin have gone to multibillion-dollar valuations. Meanwhile, other cryptocurrencies have seen success purely on the basis of their scatological names.\n“Meme” investing -- the idea that something is worth investing in, or rather gambling on, simply because it is funny -- has become commonplace. It’s a totally nihilistic parody of actual investing. This is it guys, the biggest U.S. fantasy trip of all time.\nIn January, you wrote “all bubbles end with near universal acceptance that the current one will not end yet.” This reason this time is the belief that interest rates will be kept near zero forever. But members of the Fed are penciling in a couple of rate hikes by the end of 2023. What would you do now if you were the Fed chair?\nGRANTHAM: All four chairmen post-Volcker have underestimated the potential economic damage from inflated asset prices, particularly housing, deflating rapidly. The role of higher asset prices on increasing inequality also hasn’t been considered. Asset bubbles are extremely dangerous.\nAs Fed chair, I would have moved to curtail U.S. stocks in 1998-1999 and housing in 2005-2007. Similarly, today I would act to deflate all asset prices as carefully as I could, knowing that an earlier decline, however painful, would be smaller and less dangerous than waiting -- the analogy of jumping off an accelerating bus seems a suitably painful one.\nThis current event is particularly dangerous because bonds, stocks and real estate are all inflated together. Even commodities have surged. That perfecta and a half has never happened before, anywhere. The closest was Japan in 1989 with two hyper-inflated asset categories: record land and real estate, worse than the South Sea bubble, together with record P/E’s in stocks recorded at the time as 65x. The consequences for the economy were dire, and neither land nor stocks have yet returned to their 1989 peaks!\nThe pain from loss of perceived value will only get more intense as prices rise from here. In short, the Fed since Volcker has been pretty clueless and remains so. What has been more remarkable, though, is the persistent confidence shown toward all of these four Fed bosses despite the demonstrable ineptness in dealing with asset bubbles.\nYou’ve made it clear timing the end of a bubble is challenging. But you’ve also pointed to this one bursting in “late spring or early summer” -- in other words, right now. Are we still on the cusp of a crash? What can we expect the fall to look like? And if the market should drop, how do you decide when to buy back in?\nChecking all the necessary boxes of a speculative peak, the U.S. market was entitled historically to start unraveling any time after January this year. One odd characteristic of the three biggest bubbles in the U.S. -- 1929, 1972 and 2000 -- is that the very end was preceded byblue chips outperforming more aggressive, higher beta stocks. In 2000, for five months from March, tech-related stocks crashed by 50% as the S&P 500 was unchanged, and the balance of the market was up over 15%. In 1972, before the biggest bear market since the Depression, the S&P outperformed the average stock by 35%. And in 1929, the effect was even more extreme, with the racy S&P low-priced index down nearly 30% before the broad market crashed.\nToday, the Nasdaq and Russell 2000 are below the level of Feb. 9 four and a half months later, and many of the leading growth stocks are down. (Tesla has fallen from $900 to $625.) The SPAC ETF is down 25% since February. Meanwhile, the S&P has chugged higher by 8% since Feb. 9.\nProbably the asset that most resembles the Nasdaq in 2000 is Bitcoin, and it has been cut in half over the last several weeks. In 2000, the Nasdaq crashing 50% was a perfect warning shot for the broad market six months in advance.\n\nI willadmit, though, that the extent and speed of the new stimulus program was surprising and was guaranteed to help a bubble keep going. Equally surprising was the success of the vaccination program in much of the developed world. Together, they should make the bubble longer-lived and bigger.\nWhat it will not do, though, is change the justifiable market value that will be reached one day. Therefore, as always, the higher we go the longer and deeper the pain. Getting back in is technically easy but psychologically difficult: Start to average in as the market reaches more reasonable levels, say 18x earnings.\nAUTHERS: To illustrate the point Jeremy made, the difference in behavior between the Nasdaq 100 and S&P 500 in 2000 was dramatic. (And there were plenty of far more stratospheric pure dot-com companies outside the Nasdaq 100 that peaked at the same time.) The S&P still carried on horizontally for two or three months before nose-diving, much as it has moved horizontally for the past two months.\n\nHow similar do things look now? It’s always a problem putting Bitcoin on a chart with anything else, because its performance is so remarkable. But yes, there is something rather similar about how the cryptocurrency has dived while the S&P moves sideways.\n\nNote that there was already an uncomfortable similarity even before the Bitcoin price dropped below $30,000 this morning.\nOne more analogy with how the most exciting speculative assets of this era seem already to have peaked: The SPAC (special purpose acquisition company) boom topped in February. So did the spectacularly successfulARK Innovation ETFrun by Cathie Wood, which is full of exciting plays on future technology investments. These are arguably better comparisons to the dot-com era, when companies went public without ever having generated earnings or even sales, and when there was great excitement about new technology. That excitement has proved to be justified two decades later, but it didn’t stop a lot of people from losing money in 2000.\n\nTo continue on the issue of timing the stock market, it seems to me that timing the bond market could be critical. For years, the standard point made by equity bulls has been that even if share prices look historically expensive, bonds appear even more extreme, Can we see a true unwinding of the stock-market bubble without first witnessing an unwinding of the bond bubble?\nOn that issue, one reader reminded me of a passage from Jeremy’s 2017 letter for GMO, which brought attention to the fact that profit margins and the multiple that people were prepared to accept moved higher in the mid-1990s. Here are the charts:\n\nSource: GMO\n\nSource: GMO\nThere are of course a lot of arguments about what caused this. Perhaps the most popular explanation is that the Federal Reserve under Alan Greenspan lost the plot and started propping up the stock market, deliberately or otherwise. It was very low rates that enabled higher multiples and higher profit margins. But, of course, we have even lower real rates today.\nThis was what Jeremy said four years ago:\n\n “The single largest input to higher margins, though, is likely to be the existence of much lower real interest rates since 1997 combined with higher leverage. Pre-1997 real rates averaged 200 bps higher than now and leverage was 25% lower. At the old average rate and leverage, profit margins on the S&P 500 would drop back 80% of the way to their previous much lower pre-1997 average, leaving them a mere 6% higher. (Turning up the rate dial just another 0.5% with a further modest reduction in leverage would push them to complete the round trip back to the old normal.)”\n\n\n “So, to summarize, stock prices are held up by abnormal profit margins, which in turn are produced mainly by lower real rates, the benefits of which are not competed away because of increased monopoly power, etc. What, we might ask, will it take to break this chain? Any answer, I think, must start with an increase in real rates.”\n\nThe issue now is that real rates are historically low and could easily rise and trigger a rush for the exits. We also have more leverage and more monopoly concentration than we did four years ago.\n\nOn Jeremy’s argument from 2017, real rates might not even need to go positive to burst the bubble in stocks. To what extent do low rates keep the bubble inflated? And how much of a “tantrum” in real yields would be needed to bring down the stock market?\nGRANTHAM: Even if we stay in the recent, post-2000 low-interest-rate regime, a full scale psychological bubble can still burst as they did in 2000 and 2007 (including housing). Although, to be sure, they fell to higher lows than before and recovered much faster.\nStill, an 82% decline in the Nasdaq by 2003 was no picnic. In the longer run, a low interest-rate regime promotes lower average yields (and higher average prices) across all assets globally. However, I strongly suspect that there will be a slow irregular return to both higher average inflation and higher average real rates in the next few years, even if they only close half the difference or so with the pre-2000 good old days. Reasons could include resource limitations, energy transition and profound changes in the population mix -- with more retirees and fewer young workers throughout the developed world and China, which collectively could promote both inflation and higher rates.\nThere is still so much cash in the system from fiscal stimulus to the Fed as buyer of last resort. Several clients have asked whether it’s fair for stock bulls to fall back on this dynamic as a reason for there to be room to run. In short, is the liquidity argument valid?\nGRANTHAM: First, let me make it clear that I am not an expert on money or liquidity. However, although the rate of increase in M2, for example, is extremely high, the growth rate has declined in recent weeks precipitously, about as fast as ever recorded from roughly 18% year over year to 12%.\nJust as bull markets turn down when confidence is high but less than yesterday, so the second derivative determines the effect of liquidity. The best analogy is the fun ping-pong ball supported in the air by a stream of water. The water pressure is still very high and the ball is high, but the ball has dropped an inch or two.\nMoving to asset allocation, which several of our readers have asked about, is the traditional 60/40 portfolio still the ideal strategy? And what do you think about alternative hedges like mega-cap tech stocks or even Bitcoin as a piece of a portfolio?\nGRANTHAM: Asset allocation is particularly difficult today, with all major asset classes overpriced. With interest rates at a 4,000 year-low (see Jim Grant), 60-40 seems particularly dangerous. Two sectors are at historical low ratios however: Emerging-market equities compared the S&P and value stocksvs. growth.\nIn addition to a cash reserve to take advantage of a future market break, I would recommend as large a position in the intersection of these two relatively cheap sectors -- value stocks and emerging market equities -- as you can stand. I am confident they will return a decent 10%-20% a year and perhaps much better.\n\nThe S&P is likely to do poorly in comparison. Bitcoin should be avoided. Cryptocurrencies total over $1 trillion of claims on real global assets while adding nothing to the GDP pool --pure dilution.\nOur family environmental foundation is making a big play (75%!) in early-stage VC, including green VC. VC seems to be by far the most dynamic part of a generally fat, happy and conservative U.S. capitalism. The star players today -- the FANG types -- have all fairly recently sprung out of the VC industry, which is the U.S.’s last, best example of real exceptionalism. However, history suggests they will not be spared in a major market break and indeed may already be showing some relative weakness.\nAUTHERS: On emerging-markets’ value, it’s worth pointing out that it’s not as “out there” or merely theoretical as a lot of detractors suggest. It gives an extremely bumpy ride, of course, but over the last 20 years the MSCI EM Value index has handily beaten the S&P 500 in total-return terms.\n\nAdd to this the fact that it starts compellingly cheap now and it has very real appeal -- for those with strong constitutions who are prepared to wait.\nReading Jeremy’s response, I think it might also be important to point out that cash isn’t just there as a lead weight in a portfolio. It obviously gives you no kind of decent return at present, but it does have value in its optionality. The idea of carrying cash now is not to stay in it for 20 years at the same weighting, but to give yourself the opportunity to buy more conventional growth assets once they are at a reasonable price. So I suppose this is a caution against the notion of doing all your timing via automatic rebalancing -- you have to be ready to jump in to take opportunities.\nYou received the CBE (Commander of the Most Excellent Order of the British Empire) from Prince William in 2016 for your work on climate change, which is now a popular investing theme. How does an average investor pursue green investing when some people believe a “green bubble” is emerging? Examples include price surges on electric-vehicle makers or ESG ETFs.\nGRANTHAM: Well, what do you know? GMO has an excellent climate change fund that tries hard to avoid the crazy parts. Yes, there are some bubbly stuff in the green/ESG area, as there is everywhere. But the wind of government support and corporate recognition is behind greening the economy. So lithium and copper, for example, may be at temporary highs. But in the long term, they are very scarce resources critical to decarbonizing, and their prices will go much higher.\nSimilarly, EVs may get ahead of themselves and suffer -- Amazon was down 92% by 2002. But some will go very much higher. (The closer you can get to very early stage VC, the more you avoid the bubble, although sadly not entirely. Recycling the limited resources above, for example, may be one of the great opportunities that exist.)\nTalking about bubbles and timing them, is there validity to Goetzmann’s ideas? As bubbles are hard to identify and time, should we just opt for systematic rebalancing, which at least ensures you sell sell high and buy low to some extent?\nAUTHERS: There is a contrarian literature suggesting that there is no such thing as a bubble that we can spot in real time before it bursts. To quote Yale University’s Will Goetzmann, in a 2015 paper called “Bubble Investing: Learning from History”, a bubble is a boom that goes bad, “but not all booms are bad.”\nI’d like to put Goetzmann’s ideas to Jeremy. He defined a bubble as an index that doubles in price in a year or (a softer version) in three years, and looked at national indexes going back a century. His figures, which I quoted here, found 72 cases of a market doubling in a year. In the following year, six doubled again, and three halved, giving back all their gains: Argentina in 1977, Austria in 1924 and Poland in 1994.\nFor doubling in three years, he found 460 examples. In the following five years, 10.4% of them halved. The possibility of halving in any three-year period, regardless of what had come before, was lower than this but not dramatically so: 6%. Crashes where bubbles as he defined them burst and gave up all their gains were rarer than booms where the index went on to double again.\nGRANTHAM: Our main study of bubbles eventually covered 330 examples including commodities. To do this on a consistent basis, we defined a bubble on price series only as a two-sigma event, the kind that would occur randomly every 44 years. (In our data its every 35 years -- pretty close.)\nUsing only price trend and using only outliers seemed, then and now, better than using arbitrary price changes, which can double or triple from extreme lows, like 1931 or 1982, and mean nothing. Yes, we found a few paradigm shifts -- almost all small, such as moving from developing status to developed. None, other than oil in the first OPEC crisis, were significant. All the other major bubbles returned to trend eventually.\nFor the great bubbles by scale and significance, we also noticed that they all accelerated late in the game and had psychological measures that could not be missed by ordinary investors. (Economists are a different matter.) The data, like today, is always clear, just uncommercial and inconvenient for the investment industry and often psychologically impossible to see for many individuals.","news_type":1},"isVote":1,"tweetType":1,"viewCount":175,"authorTweetTopStatus":1,"verified":2,"comments":[],"imageCount":0,"langContent":"EN","totalScore":0},{"id":167310205,"gmtCreate":1624246618607,"gmtModify":1703831481203,"author":{"id":"3584882005284828","authorId":"3584882005284828","name":"kravo","avatar":"https://static.laohu8.com/default-avatar.jpg","crmLevel":1,"crmLevelSwitch":0,"followedFlag":false,"idStr":"3584882005284828","authorIdStr":"3584882005284828"},"themes":[],"htmlText":"Interesting&nbsp;","listText":"Interesting&nbsp;","text":"Interesting","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/167310205","repostId":"1135860567","repostType":4,"repost":{"id":"1135860567","pubTimestamp":1624243350,"share":"https://ttm.financial/m/news/1135860567?lang=&edition=fundamental","pubTime":"2021-06-21 10:42","market":"us","language":"en","title":"Troubled Companies Take Page From AMC Playbook in Seeking Stock-Market Lifelines","url":"https://stock-news.laohu8.com/highlight/detail?id=1135860567","media":"WSJ","summary":"The frenzied stock-buying activity that may have saved AMC Entertainment Holdings Inc.from bankruptcy is opening up a potential escape hatch for other troubled borrowers as well.More companies with steep financial challenges are seeking a lifeline from equity markets, eager to capitalize on thesurge of interest in stock buyingfrom nonprofessional investors. Earlier this month, coal miner Peabody Energy Corp.,offshore drilling contractor Transocean Ltd.and retailer Express Inc.,all announced plan","content":"<p>The frenzied stock-buying activity that may have saved&nbsp;AMC Entertainment Holdings Inc.from bankruptcy is opening up a potential escape hatch for other troubled borrowers as well.</p>\n<p>More companies with steep financial challenges are seeking a lifeline from equity markets, eager to capitalize on thesurge of interest in stock buyingfrom nonprofessional investors. Earlier this month, coal miner&nbsp;Peabody Energy Corp.,offshore drilling contractor&nbsp;Transocean Ltd.and retailer&nbsp;Express Inc.,all announced plans to sell stock, betting equity markets will support them despite heavy debt loads, recent losses and industry headwinds.</p>\n<p>Selling stock isn’t the typical way for distressed companies to grab a lifeline. More often, they are forced to seek out rescue loans, sell off assets or pursue a merger, which can be difficult because of their existing debt.</p>\n<p>But equity markets now are more open to supporting troubled issuers, in large part because of risk-hungry individual investors eager to speculate, according to bankers and investors following the trend.</p>\n<p>The planned equity sales, if successful, mark another way nonprofessional investors have reshaped financial markets since they began to demonstrate their collective power last year,creating opportunitiesfor finance executives in the process.</p>\n<p>“It’s a new phenomenon for some of these distressed companies,” said Scott Hartman, partner and co-head of corporate and traded credit at asset manager Värde Partners. “If I were in their seat, it makes a lot of sense to take equity capital when they can.”</p>\n<p>Peabody,Transoceanand Express are seeking to replicate—on a smaller scale—the capital-raising success of AMC, a favorite pick of individual investors who gather in online investing forums such as Reddit’s WallStreetBets.</p>\n<p>AMC raised $2.2 billionthrough several stock salesduring the pandemic, largely to an enthusiastic following of day traders, despite warnings it was at risk of bankruptcy.</p>\n<p>It is difficult to classify even a highly leveraged company as distressed when its access to equity is “seemingly infinite,” said Andy Moore, chief executive of B. Riley Securities Inc. His firm is acting as sales agent for Peabody, which earlier this month kicked off an effort to sell up to 12.5 million shares through an “at-the-market” offering. In such offerings, companies sell shares bit-by-bit at market prices in a manner that is accessible to individual investors as well as institutional ones.</p>\n<p>Since exiting bankruptcy in 2017, Peabody has faced difficulties as utilities rely less on coal, and it restructured debt in February to avert a default. The company’s bonds trade at discounts of between 69 and 78 cents on the dollar, indicating market doubts they will be fully repaid. It reported an $80 million net loss in the first quarter amid continued weak conditions for the coal industry.</p>\n<p>Express, the apparel retailer, borrowed money from private-equity firm Sycamore Partners in January to stockpile cash for surviving the pandemic. Then the company launched an ATM stock sale earlier this month, aiming to sell up to 15 million new shares, despite reporting a loss of $405 million for the last fiscal year as a result of the pandemic and its impact on shopping.</p>\n<p>On Tuesday, offshore drillerTransoceanjoined in with an offering of up to $400 million in shares despite a junk credit rating, more than $7 billion in debt, andongoing creditor litigationover its restructuring efforts last year.</p>\n<p>Peabody and Express didn’t respond to requests for comment. Transocean referred inquiries to its securities filings.</p>\n<p>Jamie Zimmerman, founder and CEO of hedge-fund manager Litespeed Management LLC, said that some troubled companies may be unable to raise new debt, and selling stock may be their only path to obtain financing.</p>\n<p>“You don’t get unless you ask,” said Dan Zwirn, founder and chief executive of asset manager Arena Investors LP. “If I’m structurally insolvent and can’t refinance myself into extending the life of the enterprise, I might as well take this shot.”</p>\n<p>“With this infusion of retail people, there are more counterparties for such a transaction,” Mr. Zwirn added.</p>\n<p>Inflows of capital from individual investors, some using money from federal stimulus funds to open trading accounts, have buoyed the broader stock market, driving gains of more than10% year-to-datefor the Dow Jones Industrial Average and Nasdaq Composite Index.</p>\n<p>Individual investors’ share of overall U.S. equities trading volume rose last year to roughly double what it was a decade before andcontinues to grow. At times, their bets on beaten-down stocks havebeat out institutional investors.</p>\n<p>Howard Fischer, a securities lawyer with Moses &amp; Singer LLP, said that the underlying economic health now seems less important than the unbridled enthusiasm of individual investors, even if that enthusiasm is divorced from any rational economic analysis.</p>\n<p>Hertz Global Holdings Inc.tried to ride a wave of interest from retail traders to finance itself last year while it was under bankruptcy protection, and ended up scrapping the effort under pressure from the Securities and Exchange Commission.</p>\n<p>The bullish individual investors who bet on the business shortly after it filed for chapter 11 were vindicated when Hertz found buyers agreeing to pay up to $8 a share in value.</p>\n<p>Adi Habbu, a director on the credit trading desk atBarclays PLC,said widespread bullishness in equity markets goes beyond retail traders, and is fueled by the economic recovery and the easing of pandemic restrictions.</p>\n<p>“It’s certainly not a bad time to try,” he said. “The core trend is that there is positive reopening sentiment that is driven not just by retail but by institutional players as well.”</p>","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; 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overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nTroubled Companies Take Page From AMC Playbook in Seeking Stock-Market Lifelines\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-06-21 10:42 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://www.wsj.com/articles/troubled-companies-take-page-from-amc-playbook-in-seeking-stock-market-lifelines-11624190402?mod=markets_lead_pos6><strong>WSJ</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>The frenzied stock-buying activity that may have saved AMC Entertainment Holdings Inc.from bankruptcy is opening up a potential escape hatch for other troubled borrowers as well.\nMore companies with ...</p>\n\n<a href=\"https://www.wsj.com/articles/troubled-companies-take-page-from-amc-playbook-in-seeking-stock-market-lifelines-11624190402?mod=markets_lead_pos6\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"BTU":"Peabody","AMC":"AMC院线","RIG":"Transocean Ltd.","EXPR":"Express, Inc."},"source_url":"https://www.wsj.com/articles/troubled-companies-take-page-from-amc-playbook-in-seeking-stock-market-lifelines-11624190402?mod=markets_lead_pos6","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1135860567","content_text":"The frenzied stock-buying activity that may have saved AMC Entertainment Holdings Inc.from bankruptcy is opening up a potential escape hatch for other troubled borrowers as well.\nMore companies with steep financial challenges are seeking a lifeline from equity markets, eager to capitalize on thesurge of interest in stock buyingfrom nonprofessional investors. Earlier this month, coal miner Peabody Energy Corp.,offshore drilling contractor Transocean Ltd.and retailer Express Inc.,all announced plans to sell stock, betting equity markets will support them despite heavy debt loads, recent losses and industry headwinds.\nSelling stock isn’t the typical way for distressed companies to grab a lifeline. More often, they are forced to seek out rescue loans, sell off assets or pursue a merger, which can be difficult because of their existing debt.\nBut equity markets now are more open to supporting troubled issuers, in large part because of risk-hungry individual investors eager to speculate, according to bankers and investors following the trend.\nThe planned equity sales, if successful, mark another way nonprofessional investors have reshaped financial markets since they began to demonstrate their collective power last year,creating opportunitiesfor finance executives in the process.\n“It’s a new phenomenon for some of these distressed companies,” said Scott Hartman, partner and co-head of corporate and traded credit at asset manager Värde Partners. “If I were in their seat, it makes a lot of sense to take equity capital when they can.”\nPeabody,Transoceanand Express are seeking to replicate—on a smaller scale—the capital-raising success of AMC, a favorite pick of individual investors who gather in online investing forums such as Reddit’s WallStreetBets.\nAMC raised $2.2 billionthrough several stock salesduring the pandemic, largely to an enthusiastic following of day traders, despite warnings it was at risk of bankruptcy.\nIt is difficult to classify even a highly leveraged company as distressed when its access to equity is “seemingly infinite,” said Andy Moore, chief executive of B. Riley Securities Inc. His firm is acting as sales agent for Peabody, which earlier this month kicked off an effort to sell up to 12.5 million shares through an “at-the-market” offering. In such offerings, companies sell shares bit-by-bit at market prices in a manner that is accessible to individual investors as well as institutional ones.\nSince exiting bankruptcy in 2017, Peabody has faced difficulties as utilities rely less on coal, and it restructured debt in February to avert a default. The company’s bonds trade at discounts of between 69 and 78 cents on the dollar, indicating market doubts they will be fully repaid. It reported an $80 million net loss in the first quarter amid continued weak conditions for the coal industry.\nExpress, the apparel retailer, borrowed money from private-equity firm Sycamore Partners in January to stockpile cash for surviving the pandemic. Then the company launched an ATM stock sale earlier this month, aiming to sell up to 15 million new shares, despite reporting a loss of $405 million for the last fiscal year as a result of the pandemic and its impact on shopping.\nOn Tuesday, offshore drillerTransoceanjoined in with an offering of up to $400 million in shares despite a junk credit rating, more than $7 billion in debt, andongoing creditor litigationover its restructuring efforts last year.\nPeabody and Express didn’t respond to requests for comment. Transocean referred inquiries to its securities filings.\nJamie Zimmerman, founder and CEO of hedge-fund manager Litespeed Management LLC, said that some troubled companies may be unable to raise new debt, and selling stock may be their only path to obtain financing.\n“You don’t get unless you ask,” said Dan Zwirn, founder and chief executive of asset manager Arena Investors LP. “If I’m structurally insolvent and can’t refinance myself into extending the life of the enterprise, I might as well take this shot.”\n“With this infusion of retail people, there are more counterparties for such a transaction,” Mr. Zwirn added.\nInflows of capital from individual investors, some using money from federal stimulus funds to open trading accounts, have buoyed the broader stock market, driving gains of more than10% year-to-datefor the Dow Jones Industrial Average and Nasdaq Composite Index.\nIndividual investors’ share of overall U.S. equities trading volume rose last year to roughly double what it was a decade before andcontinues to grow. At times, their bets on beaten-down stocks havebeat out institutional investors.\nHoward Fischer, a securities lawyer with Moses & Singer LLP, said that the underlying economic health now seems less important than the unbridled enthusiasm of individual investors, even if that enthusiasm is divorced from any rational economic analysis.\nHertz Global Holdings Inc.tried to ride a wave of interest from retail traders to finance itself last year while it was under bankruptcy protection, and ended up scrapping the effort under pressure from the Securities and Exchange Commission.\nThe bullish individual investors who bet on the business shortly after it filed for chapter 11 were vindicated when Hertz found buyers agreeing to pay up to $8 a share in value.\nAdi Habbu, a director on the credit trading desk atBarclays PLC,said widespread bullishness in equity markets goes beyond retail traders, and is fueled by the economic recovery and the easing of pandemic restrictions.\n“It’s certainly not a bad time to try,” he said. “The core trend is that there is positive reopening sentiment that is driven not just by retail but by institutional players as well.”","news_type":1},"isVote":1,"tweetType":1,"viewCount":128,"authorTweetTopStatus":1,"verified":2,"comments":[],"imageCount":0,"langContent":"EN","totalScore":0}],"defaultTab":"posts","isTTM":true}