Goldman Sachs Chief Executive David Solomon said greed trumps fear in global financial markets, warning that such periods of irrational exuberance aren't long-lived.
"When I step back and think about my 40-year career, there have been periods of time when greed has far outpaced fear -- we are in one of those periods," Solomon said during an interview at the Bloomberg New Economy Forum in Singapore.
"My experience says those periods aren't long-lived. Something will rebalance it and bring a little bit more perspective. And given it feels like inflation is running above trend, chances are interest rates will move up and that will take some of the exuberance out of certain markets." he said.
Goldman CEO @DavidSolomon warns markets could face a rocky time ahead as the world tries to emerge out of a pandemic.— Bloomberg (@business) November 17, 2021
"There have been periods of time when greed has far outpaced fear—we are in one of those periods of time,” he tells the #NewEconomyForum https://t.co/9sWa7u349u pic.twitter.com/mpdIlFaj35
Solomon points out precisely what legendary 'Bond King' Bill Gross pointed out earlier this week in an FT interview: ultra-low interest rates and central bank bond-buying programs have spurred euphoria in stocks, bonds, crypto, real estate, and anything else under the sun. He warned that central banks pumping trillions in markets had caused a "dangerous" situation for overvalued financial assets. The bank will need to act sooner than later in taper. This view was also shared with Allianz Chief Economic Advisor Mohamed El-Erian earlier this week.
"Chances are interest rates will move up, and if interest rates move up that in of itself will take some of the exuberance out of certain markets," Solomon said.
Meanwhile, Goldman's chief equity strategist David Kostin told clients Tuesday that S&P 500 will climb by 9% to 5100 at year-end 2022, "reflecting a prospective total return of 10% including dividends." With multiples already stretched and the head of Goldman warning about irrational exuberance, Kostin forecasts S&P500 will continue to drive returns in 2022.
A much better view of the exuberance is the chart below, showing ARK Innovation ETF, unprofitable tech companies, momentum long index, IPO and SPAC index, Grayscale Bitcoin Trust, and, of course, Tesla.
Markets are in a territory of greed which doesn't mean this level is automatically rejected but can sustain a period of greediness for some time. The biggest takeaway is that time's a ticking for when fear returns.
During the interview, Solomon mentioned that periods like these only last for a short time and appear to agree with Gross and El-Erian that monetary tightening to tame inflation could ruin the stock market party.
And in the coming days, if the Biden administration picks Lael Brainard, one of the most dovish Fed members, she might keep the party going until the midterms.