At this point stimulus checks are nothing new to America, under the last administration with President Trump two stimulus bills were passed. Today, the Biden administration is in place and is also seeking to pass a stimulus bill. This one is even bigger than anything before sitting at a whopping $1.9 trillion. In the past each bill had only pushed up stocks higher and higher but this time some experienced investors such as investing legend Jeremy Grantham are voicing a bearish outlook.
So how could this be? Well Grantham has explained if stocks do continue to rise, they are simply rising too high and too quick regarding how the economy is looking. And because government stimulus is only pushing stocks higher, it is only “inflating the bubble”. Grantham believes that extreme overvaluations, explosive price increases, and “hysterically speculative investor behavior” all demonstrate that the stock market is in a bubble that not even the Fed can stop from bursting.
Investors such as Erik Schatzker have warranted this further, explaining that previous stimulus checks didn’t increase capital spending and didn’t increase real production, instead only boosting stocks. A lack of tangible results is clearly not boding well for many investors. Moreover, the new Head of the Treasury, Janet Yelen, has said she would consider taxing wealthy investors on those yet-to-be realized gains to boost government revenues. Whether or not this will improve the economy is yet to be realized, but one thing is for sure, and that’s that the stock market is a constantly shifting and often unstable marketplace.
So, are you on team bear and think this bubble is coming or are you team bull, charging ahead with confidence in tomorrow’s markets?
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.