Most people don’t think about the Federal Reserve very often, and few think about the effect that the US central bank has on investors. But over the past few years, things have started to change. Many economists and market observers have wondered whether the years of monetary policy by the Fed and other central banks after the Great Financial Crisis (GFC) helped create the “everything bubble” – and now it has popped.
The whole idea of bubbles is not new. For years before the stock market crash of 2022, leading minds on Wall Street including investment legend Jeremy Grantham warned of a “superbubble”. The idea is that near-zero interest rates and quantitative easing (QE)—a policy in which the Fed will buy mortgage-backed securities and government bonds to boost lending and investment in the economy—drive investors toward safer investments, allowing business models that unsustainable flourishing in cheap debt, and supported increases “savagely unhealthy” in home prices.
Lane Turner—The Boston Globe/Getty Images
It’s early days, but in retrospect many outlandish financial predictions accompanied this era of easy money. And the fallout for America has not been good, as inflation continues to rage and fears of recession rise. But there is a silver lining for the financial community. The entire bubble provided some of the most ridiculous—and hilarious—prophecies in history.
From cryptocurrency experts and hedge fund managers to economists and investment banks, the era of easy money is fueled by bulls who believe the good times will never end. Here is a look at some of their strange calls.
Bitcoin bulls
The cryptocurrency boom of 2020 and 2021 is unprecedented. Between January 2020 and the peak of crypto enthusiasm in November 2021, the total value of the industry grew by more than $3 trillion and the price of Bitcoin increased by about 800%.
The crypto faithful believe that the party has only just begun. Billionaire venture capitalist Tim Draper said in June 2021 that Bitcoin will reach $250,000 by the end of 2022. CNBCJade Scipio.
Bitcoin finally ended 2022 just above $16,500, but just last month, Draper repeated his call for Bitcoin to reach $250,000 – this time he said it would be in the middle of 2023.
“I expect a flight to quality and decentralized crypto like bitcoin, and some of the weaker coins become relics,” Draper said. CNBC.
Tim Draper did not respond fortunerequest for comments.
Draper is not the only major figure to jump on the Bitcoin train during the era of easy money and make lofty predictions. Cathie Wood of ARK Invest was the first public asset manager to gain exposure to Bitcoin through the Bitcoin Investment Trust (GBTC) as part of a technology-focused exchange-traded fund in 2015.
Hugo Amaral—SOPA Image/LightRocket/Getty Images
The bet led Wood to face serious criticism from his peers, but it banned a brief crypto season in 2018, paying off as the price of Bitcoin rose above $65,000 in November 2021.
Wood is confident that the good times will remain in the bull market. In November 2020, he told me Barron‘s that the institutional adoption of crypto will drive the price of Bitcoin to $500,000 by 2026 and repeatedly “buy the dip” whenever Bitcoin prices fall. Wood even told Globe and Mail in a February 2020 interview that Bitcoin is “one of the biggest positions” in his retirement account.
ARK Invest’s CEO remains bullish even at the start of 2022, when the price of Bitcoin has fallen from a high of more than $65,000 to just under $50,000. He said that the main cryptocurrency will touch $1 million by 2030 in ARK’s “Big Idea 2022” annual research report.
Since the price of Bitcoin has dropped more than 60%, but Wood and his team are not fazed, and still believe that the prediction is the same.
“We think Bitcoin is coming out of this smelling like a rose,” Wood said Bloomberg in December, arguing that institutions will finally buy into Bitcoin after it is “war tested” by the crypto future.
Cathie Wood did not respond fortunerequest for comments.
Tom Lee, head of research at Fundstrat Global Advisors, who previously served as chief equity strategist at JPMorgan and spent more than 25 years on Wall Street, has also been a perennial Bitcoin bull. As early as 2022, he predicted that Bitcoin would reach $200,000 in the coming years.
And despite the recent fall, the admission is “terrifying” for investors, Lee said CNBC in November who still believe that Bitcoin will come out of the current downtrend and hit the target. But while many crypto forecasters are sticking with their lofty estimates, Wall Street has backed off somewhat.
Tom Lee did not respond fortunerequest for comments.
High stock market forecast
Investment banks make quite dramatic predictions during the era of cheap money. After the stock market soared throughout the pandemic, returning 28% for investors, Wall Street was convinced that things would slow down in 2022, but it didn’t turn out that way.
Investment banks expect the S&P 500 to end 2022 at 4,825, showing only a 1% gain for the year. However, the blue-chip index is down about 20%.
Bullishness (perhaps unwanted) among investment banks is very clear when looking at the price targets of growth stocks that benefit from the pandemic trend. Online used car retailer Carvana, for example, is surging throughout the pandemic as used car prices soar to record highs.
The company could take advantage of consumers’ inability or unwillingness to purchase vehicles in person during COVID, prompting some analysts to make wild predictions.
In January 2022, Morgan Stanley auto analyst Adam Jonas called Carvana an “apex predator in auto retail” and set a 12-month price target of $430 for the stock. Since then, the online auto retailer’s stock has fallen more than 97% to just $4.48—and some analysts believe more pain is in store for investors.
Mario Tama—Getty Images
Morgan Stanley did not respond fortunerequest for comments.
New Construct CEO David Trainer warned investors in June that Carvana was burning cash at an unsustainable rate and might not survive.
“Time is running out for cash-burning companies kept afloat with easy access to capital,” Coach said fortune. “These ‘zombie’ companies are at risk of bankruptcy.”
Coinbase is another example of the enthusiasm that has developed on Wall Street over the past few years. When the cryptocurrency exchange went public in April 2021, the stock rose from a reference price of $250 to $381 per share.
CNBC’s Jim Cramer, a former hedge fund manager, took to Twitter after the IPO, said he “likes Coinbase for $475.” And he is not alone, the average price target of the investment bank for the exchange is more than $400 per share in early 2021.
However, since then, Coinbase shares have dropped more than 90% during the crypto season. And Cramer has changed his mind, he said December 13 tweet that he was “not a Coinbase buyer here,” said it was “too early.”
CNBC did not respond fortunerequest for comments.
The era of cheap money may have led many forecasters to assume that asset prices will continue to rise, but this year has proven to be a wake-up call. Wall Street analysts have cut price targets for many of the pandemic’s stock markets. This is a new era for markets and forecasters, as Tim Pagliara, chief investment officer of investment advisory firm CapWealth, told fortune last month.
“We’re going to eliminate a lot of speculation,” he said. “There is a lot of revaluation of everything from commercial real estate to how the investment community looks like crypto.