The inventory market frenzy appears like a dot-com bubble from 1999
Billionaire global investor Barry Sternlicht said Thursday he was concerned about the long-term sustainability of current stock market conditions, warning that some aspects are reminiscent of the dot-com bubble of the 1990s.
“I don’t think we have a problem on the stock market in the short term,” said Sternlicht on “Squawk Box”. “The attraction is too great.”
After the market collapsed on fears about Covid in February and March of last year, the Federal Reserve cut interest rates to near zero and unleashed other programs to help the financial system. Congress also pushed through two massive stimulus packages in 2020, with Wall Street hoping for another one this year.
At the close of trading on Wednesday, the Nasdaq was up more than 100% from its pandemic low on March 23. The S&P 500 gained around 75% over the same period. The Nasdaq, S&P 500, and Dow Jones Industrial Average all closed at record highs on Wednesday with President Joe Biden taking office.
However, Starwood Capital CEO urged investors to watch out for “the second half of this year,” citing worrying traits like investors who appear to be relying on social media websites to get stock ideas and contribute to brief shortages . It’s a development that CNBC’s Jim Cramer also talked about, also in response to the surge in GameStop shares.
“The dark bottom of this market is kids – and I don’t know if they’re kids, we just call them kids because we think they’re less experienced – stay home and trade and buy stocks during the day,” Sternlicht said. “I keep reminding my youngins, ‘Children, one thing about getting older is you’ve seen it all before.’ … It feels a lot like 1999 to me. “
Highly speculative Internet stocks helped the technology-dominated Nasdaq gain more than 500% from 1995 until the bubble burst in March 2000. The index had traded above 5,000 before falling nearly 80% to a multidecade low of 1,108 in October 2002.
“I think people should be careful and make sure they don’t depend on this stock market for so long,” said Sternlicht, who founded Starwood Capital in 1991, which focuses on global real estate, hotel management, and the oil and gas energy infrastructure. Starwood Hotels & Resorts were also founded, which were later taken over by Marriott.
The way some newly listed companies have traded is also a cause for concern, Sternlicht said. “There are companies that trade like Bitcoin. They rise and rise and rise on a social media platform and just keep buying it.”
Sternlicht, who recently filed for its third special-purpose acquisition firm, a trend that became increasingly popular in 2020, admitted that investors should be more critical about which SPACs they are leaving behind, claiming some are oversubscribed. However, he said traditional IPOs aren’t above the worries either.
There are “bad companies that go public and quadruple,” said Sternlicht. “It’s funny. I’ll talk to him [venture capitalists] and they’ll say, “Oh, the company isn’t worth it.” They go public and in two months their stock increases sixfold. It’s not a SPAC [thing only]. It’s the same in the market. “