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- Hamish Douglass said he anticipated being slammed for his crypto ideas, but he didn’t mind
- When other speculative bubbles run their course and burst, the veteran investor believes crypto will inevitably sink to zero
- For the year ended June 30, Magellan’s flagship international fund returned 10.8%, compared to 27.5 percent for its benchmark, the MSCI All-World Index
As part of a larger warning that asset values artificially inflated by government and central bank support may face a day of reckoning, Magellan’s millionaire co-founder Hamish Douglass has lambasted cryptocurrency markets as one of the greatest mass delusions in modern history. When other speculative bubbles run their course and burst, the veteran investor believes crypto will inevitably sink to zero.
Douglass stated that he expected to be heavily chastised for his crypto ideas, but that he didn’t mind. He is unable to tell us when this may occur in this manner. It could happen soon, or it could take a long time to happen in the long run. He believes that when we look back in 20 years, it will most likely be the case study of irrationality.
Douglass on Tesla
The fund manager singled out meme stocks like Tesla as examples of reckless speculation, where share prices have nothing to do with the actual worth of the company. Tesla, an electric car company, has grown 14-fold in the last five years, and its founder, Elon Musk, has 58.3 million Twitter followers. As part of the retail investor phenomena of 2020, other meme stocks such as AMC, GameStop, and Nokia also rose after garnering viral attention on social media channels such as Twitter and Reddit.
Douglass’ attitude is unsure
Douglass was unconcerned about asset value bubbles in terms of Magellan’s funding efficiency because it received no publicity. However, he warned of a contagious drop in sentiment if cryptocurrencies’ rising popularity poses a systemic risk, in which contagion in the event of a crash harms broader investor confidence and upends markets.
The fund manager also justified Magellan’s conservative portfolio positioning and underperformance over the previous year, citing rising risks associated with significant correction inequities. For the year ended June 30, Magellan’s flagship international fund returned 10.8%, compared to 27.5 percent for its benchmark, the MSCI All-World Index.
He believes it’s a bit of a wake-up call in Australia, with Sydney and Melbourne once more under strict lockdown, he said. They all assumed the game was done. They were set to receive their vaccinations. The worry is that this virus will produce an escaped mutant. One that is immune to immunizations. This particular one is terrifying in terms of the speed at which it may spread, but the vaccines appear to be effective in preventing death.
Inflation and fees are increasing in the market
According to the fund manager, inflation is the other big unknown issue that will be affecting markets in the coming months and years. Last week, US inflation data revealed that prices rose at their fastest rate in 13 years in June, as the cost of a broad basket of consumer goods such as houses, automobiles, vehicles, and gasoline increased. He stated that the most likely end consequence, but certainly not the only end result, is that the biggest inflationary pressures we’re seeing will prove to be transitory for the time being.
Douglass warned that if June’s inflation spike proves to be more than ephemeral, the eventual outcome could be market-shaking higher interest rates and recession. And it might make [inflation] a major issue for fairness buyers around the world. According to the fund manager, rising risk-free rates as a sign of inflation also endanger the balance sheets and viability of many corporations that have taken on debt in the past three to five years.
They’ve leveraged up their balance sheets, their credit ratings have dropped, and there’s been a huge comeback of speculative-grade junk bond credit on the market, he said. Individuals have chased a majority of these credits since interest rates are at zero and other people are looking for yield, thus these properties are on a large scale. The fund manager warned investors not to discount to zero the possibility that yields on benchmark risk-free rates in the form of US 10-year Treasuries will rise from 1.5 percent to 3.5% over the medium term.
As risk-free rates climb, purchasers expect more compensation in the form of lower values to compensate for the risks associated with uncertain future cash flows from shares. Interest rates, as Warren Buffett famously stated, are the gravity of markets. You already know that higher fees mean lower asset expenses, he said. Asset costs have grown as interest rates have fallen, as we’ve all seen over the previous decade.
Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.
