Last Updated on January 25, 2021 by Henry John
I don’t get comfortable when things get out of control, even if they are going out of control in my favor, especially stocks. When people are too excited about a security that they ignore basic fundamentals and cause an extremely overvaluation of the security, I get worried.
Legendary investor Jeremey Grantham, the cofounder of GMO, during an interview with Bloomberg warned that the $1.9 trillion in federal aid President Joe Biden is seeking from Congress would further inflate a bubble in the stock market.
“If it’s as big as they talk about, this would be a very good making of a top for the market, just of the kind that the history books would enjoy” Grantham told Erik Schatzker.
“We will have a few weeks of extra money and a few weeks of putting your last, desperate chips into the game and then an even more spectacular bust” he added.
There is a clear ballooning bubble in the US stock market. It’s like there’s so much money being printed and distributed to individuals who only have one place to put it in: The US Stock Market.
This has been a trend that began last year. Last year, we experienced a crazy rise in valuation of EV stocks, beginning with Tesla, and this year, it seems speculative investors are expanding the coast and taking on the renewable energy market.
Most of the stocks in my list of renewable energy penny stocks are up by at least 50% YTD, with some of them already up over 100%.
Ocean Power Technologies Inc (NASDAQ:OPTT), a company that I currently hold a short position on, is up almost 250% in less than 20 trading days. This is a company with a significant negative earnings, with a negative net profit margin of -2,562.71% in its last reported quarter.
Goldman Sachs recently said that parts of the market are in bubbles, and that exuberance around special purpose acquisition companies, as well as around investor interest in companies with negative earnings are cause for concern.
Goldman chief U.S. equity strategist David Kostin told clients that “pockets of the market have recently demonstrated investor behavior consistent with bubble-like sentiment”. And I strongly believe that the renewable energy market, especially small-caps renewable energy stocks, are part of these ‘pockets’ of the market.
And here’s the catch, I don’t think the bubble is about to burst any time soon, especially if the President gets a significant portion of that $1.9 trillion into the hand of excited and speculative investors.
Food for thought: Most people knew that the internet had come to stay, but that didn’t stop the dotcom bubble from bursting.