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Jan 8, 2021

'Speculative binge' powering market records: Money manager

We're shorting areas that were levitated by low interest rates: John Zechner

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North American equity markets’ recent record highs have been partly fuelled by investors taking their chances with extra cash, according to one Bay Street money manager.

“You can’t argue that there’s not a bit of a speculative binge going on and that worries me to a degree,” John Zechner, founder of J. Zechner Associates, said in an interview Friday.

“But on the other hand, we did get an economic reset last year,” he added. “We had the fastest recession ever, the worst downturn, and now we’re sort of building for some growth going forward.”

The S&P/TSX Composite Index broke its all-time closing high on Thursday, ending the day at 18,027.57. The Dow Jones Industrial Average, Nasdaq and S&P 500 also reached record highs in 2021.

Zechner noted that pandemic-induced lockdowns have left some investors with money to burn and nowhere to spend it.

“People are flush with cash and they haven’t really been plugging it into the real economy,” he said. “They haven’t been spending it. They haven’t been going travelling or anything like that, and instead they invest it.”

However, he cautioned investors to be wary of market bubbles and make valuation-based decisions in the market.

“Be wary of companies that are supported by continuing zero interest rates and beware of excessive valuations,” he said.

“Those do matter in the end. They mattered in 1999, 2000, and I think they’ll matter 20 years later.”

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