There is now half air in US stocks, warns a well-known investor in DI

A well-known investor Christopher Gardell believes that US stocks are currently overpriced. He estimated Today’s Industry in the interviewthat the stock market is up to half of the air.

“The return on free cash flow is on average 2 percent, while the interest rate on the US ten-year government bond is about 5 percent. I would say that the US stock market is 50 percent cash flow and 50 percent air,” Gardell tells DI.

According to Gardell, for example, the actions of the United States to strengthen the Japanese yen indicate “panic” regarding the interest rates on the US government bond. The interest of the United States in participating in Japan’s currency intervention has been interpreted as the protection of interest rates on its own government bonds.

Gardell sees that the high level of interest rates on government bonds can pose a threat to the US stock market. He does not consider share valuations to be sustainable.

“When the interest rate is this high, I don’t really understand why it would be worthwhile to participate in the extremely highly valued American stock market.”

Value for AI investments

Another concern Gardell sees is that investors will soon start demanding returns on huge AI and data center investments. However, according to him, they are not to be expected in the near future.

“That’s why I think these highly valued companies are going to be hit hard next year. If you say 50 percent is air, then a lot of that air is going to get out over the next year,” says Gardell.

According to Gardell, the fact that a significant part of the capital directed at the stock exchanges in the United States is passive capital adds to the concern. For example, he considers index-linked funds to be problematic in terms of stock exchange pricing.

“The problem is that they buy companies, even if they are insanely expensive. The market shouldn’t work like that. What is insanely expensive should be sold, not bought.”

Gardell also sees a danger in the fact that, in his opinion, overvalued companies will not recover if there is a strong decline in the stock markets in the future. He points out that normally companies whose valuation is based on cash flow recover well from stock market losses.

“Anything that’s air-based doesn’t bounce back. You lose money on it forever,” says Gardell.