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Lloyd Blankfein Blames SPACs, Free Money For Bubble Territory

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Lloyd Blankfein Blames SPACs, Free Money For Bubble Territory

Lloyd Blankfein, who was the CEO of Goldman Sachs (NYSE: GS) from 2006 to 2018, told CNBC the market is approaching bubble territory.

In March, Blankfein predicted a quick recovery for the markets. He tweeted that the underlying economy was strong, banks were well capped, and the system was not too leveraged when compared to the 2008 financial crisis.

Bubble Territory: Low interest rates and the speculative nature of the market is causing valuations to approach bubble territory according to Blankfein.

A “wash of free money is clearly creating bubble elements in the markets,” Blankfein said, noting that money isn't being “allocated in a disciplined way.”

“Look at the credit market," he said, "people are lending to what historically would have been weak credits for very little money.”

Blankfein on SPACs: Blankfein noted the SPAC market shows the market is too speculative in nature.

“Look at SPACs and how much money is available on the basis of somebody’s reputation as opposed to a business plan," he told CNBC.

SPACs have raised over $30 billion in 2020. CNBC notes SPACs outpaced traditional IPOs for two straight months.

See Also: 4 Issues That Will Determine If The Market's Next Big Move Is Up Or Down

What Others Are Saying: Venture capitalist Bill Gurley said last week the current state of the market reminds him of the dot-com bubble of the late 1990s.

Sevens Report Research Founder Tom Essaye said in August he saw five similarities between today’s market and the 2000 dot-com bubble.

The sideways trend of the yield curve and the stage being set for inflation were two of the reasons. The flood of first-time traders thanks to Robinhood was also a similarity.

Essaye noted that S&P 500 components were trading at 20 times 2021 estimates, 25% above historical averages of 16 times. Valuations peaked at 24 times in 2000.

Large technology companies like Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), Amazon.com (NASDAQ: AMZN), Google (NASDAQ: GOOG), and Facebook (NASDAQ: FB) seeing increased valuations and making up 23% of the S&P 500 was the other big similarity Essaye saw.

Benzinga's Take: The rise in the valuation of stocks has produced similarities to a bubble. New investors are entering the market through no commission trading platforms like Robinhood.

SPACs have seen large interest as they provide a way for investors to get in on the ground floor of private companies that could see enormous growth. Valuations in SPACs have dropped recently, which shows the demand could be decreasing.

 

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