Legendary institutional investor Richard Bernstein said WSB investors who are making speculative trades are “basically playing with fire”.
Fundamental analysis: “A classic bubble”
Bernstein said the speculators are caught in a bubble, citing democratization of the market as the main factor behind it. He raised his concerns that the ongoing euphoria could put amateurs in difficult positions.
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“Bubbles show up in a number of different formats, and this is a classic,” Bernstein said.
He also cited the Fed-induced unprecedented amounts of liquidity and high leverage as other factors that contributed to the risk-taking setting. He said the market is currently split so that one part is absurdly speculative while the other is virtually ignored.
“Trading volumes are up pretty dramatically,” Bernstein said. “We really have a bubble going on in that half of the market.”
A number of stocks, such as GameStop, have recorded outstanding performances this year. However, their performance is out of touch with fundamentals because of short squeezes.
“If you’re worried about what’s going on… you should be a seller,” said Bernstein. “Will fundamentals win? Always.”
These short squeezes came after chat boards on Reddit prompted retail investors to push the price of a number of stocks in a bid to force out sellers. Consequently, hedge funds that were selling these stocks had to enter the market again and buy these stocks to compensate for losses.
Technical analysis: Demand disappears
GameStop (NYSE: GME) stock price is currently trading 33.53% lower on the day after online brokers Robinhood and Interactive Brokers announced new restrictions on trading certain stocks. The stock had previously exploded 135% after hedge funds closed their short positions.
The stock has stopped trading for a certain period of time on Thursday before it resumed to immediately head higher. In times like this, technicals go out of the window.
Game stop set an all-time high of $483.00 earlier today. Exactly a month ago, the GME stock price traded around the $20.00 mark.
Renowned institutional investor Richard Bernstein said that “Wallstreetbets” investors might face serious troubles if they continue to make speculative trades. In the meantime, the “war” between Wall Street and WSB continues.