Most people don’t think about the Federal Reserve very often, and few think about the impact the Federal Reserve is having on investors. But in recent years that has started to change. Many economists and observant market watchers argue that years of easy monetary policy by the Fed and other central banks after the Great Financial Crisis (GFC) helped create an “everything bubble” – and now it’s bursting.
The all-bubble idea is not new. For years ahead of the stock market troubles of 2022, leaders on Wall Street, including investment legend Jeremy Grantham, warned of a brewing “super-bubble”. The idea is that near-zero interest rates and quantitative easing (QE) – a policy in which the Fed would buy mortgage-backed securities and government bonds to boost lending and investment in the economy – pushed investors towards riskier investments and allowed for unsustainable business models thriving on cheap debt and fueling a “wildly unhealthy” surge in house prices.
Renowned investment manager Jeremy Grantham believes we are in a “super-bubble”.
Lane Turner—The Boston Globe/Getty Images
It’s early days, but in retrospect, many outlandish financial forecasts accompanied this easy-money era. And the fallout for Americans hasn’t been pretty, as inflation continues to rage and recession fears mount. But there is a silver lining for the financial community. The Everything Bubble provided some of the most ridiculous — and hilarious — predictions in history.
From cryptocurrency experts and hedge fund managers to economists and investment banks, the easy money era was filled with bulls who believed the good times would never end. Here’s a look at some of their weirdest calls.
The Bitcoin Bulls
The cryptocurrency boom of 2020 and 2021 was unprecedented. Between January 2020 and the peak of crypto fervor in November 2021, the total value of the industry grew to over $3 trillion and bitcoin prices surged approximately 800%.
Crypto believers were sure the party was just getting started. Billionaire venture capitalist Tim Draper said in June 2021 that Bitcoin would hit $250,000 by the end of 2022. “I think I’ll be right on that point,” he assured CNBC’s Jade Scipioni.
Bitcoin ended 2022 just above $16,500, but just last month Draper reiterated his call for Bitcoin to reach $250,000 – this time saying it would be by mid-2023.
“I expect a flight into high-quality and decentralized cryptos like bitcoin, and for some of the weaker coins to become relics,” Draper told CNBC.
Tim Draper did not respond to Fortune’s request for comment.
Draper wasn’t the only leader to jump on the Bitcoin bandwagon and make lofty predictions during the easy money era. ARK Invest’s Cathie Wood was the first public money manager to invest in Bitcoin as part of her tech-focused exchange-traded ETFs through the Bitcoin Investment Trust (GBTC) in 2015.
Ark Invest CEO Cathie Wood is a long-time supporter of Bitcoin and slams FTX’s Sam Bankman-Fried.
Hugo Amaral—SOPA Images/LightRocket/Getty Images
The bet caused Wood to face serious criticism from her peers, but apart from a brief crypto winter in 2018, it paid off as Bitcoin’s price surged past $65,000 by November 2021.
Wood was certain the good times would continue throughout the bull market. In November 2020, she told Barron’s that institutional adoption of crypto would propel the price of bitcoin to $500,000 by 2026, repeatedly buying the dip when bitcoin prices fell. Wood even told The Globe and Mail in a February 2020 interview that Bitcoin is “one of the largest positions” in her retirement account.
The CEO of ARK Invest remained bullish even in early 2022 when Bitcoin prices had fallen to just under $50,000 from their highs of over $65,000. She argued that the leading cryptocurrency would hit $1 million by 2030 in ARK’s annual Big Ideas 2022 research report.
Since then, Bitcoin’s price has fallen more than 60%, but Wood and her team are not concerned and still believe their prediction is fair.
“We think bitcoin will come out of this thing smelling like a rose,” Wood told Bloomberg in December, arguing that institutions will eventually buy into bitcoin after it’s been “battle-tested” through the crypto winter.
Cathie Wood did not respond to Fortune’s request for comment.
Tom Lee, head of research at Fundstrat Global Advisors, who previously served as chief equity strategist at JPMorgan and spent over 25 years on Wall Street, has also been a perpetual Bitcoin bull. In early 2022, he predicted that Bitcoin would hit $200,000 in the coming years.
And despite the recent drop, which he admitted was “terrible” for investors, Lee told CNBC in November that he still believes Bitcoin will emerge from the current downtrend and hit its target. But while many crypto forecasters are sticking to their high estimates, Wall Street has scaled back some of theirs.
Tom Lee did not respond to Fortune’s request for comment.
High stock market forecasts
Investment banks have made some pretty dramatic predictions during the easy money era. After the stock market soared during the pandemic, returning 28% to investors, Wall Street was confident that things would slow down in 2022, but not at the rate they actually did.
Investment banks expected the S&P 500 to end 2022 at 4,825, up just 1% for the year. Instead, the blue chip index fell about 20%.
The (perhaps unwarranted) bullishness of investment banks was particularly evident when looking at price targets for growth stocks that have benefited from pandemic trends. Online used car retailer Carvana, for example, surged during the pandemic as used car prices soared to record highs.
The company was able to take advantage of consumers’ inability or unwillingness to purchase vehicles in person during COVID, prompting some analysts to issue incredibly optimistic forecasts.
In January 2022, Morgan Stanley auto analyst Adam Jonas called Carvana the “top predator in auto retail” and assigned the stock a 12-month price target of $430. Since then, shares of the online car dealership have plummeted more than 97% to just $4.48 — and some analysts believe investors are in for more pain.
Morgan Stanley has been fined $35 million after devices containing millions of customer details turned up at an online auction.
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Morgan Stanley did not respond to Fortune’s request for comment.
New Construct CEO David Trainer warned investors in June that Carvana was burning cash at an unsustainable rate and may not survive.
“The time is running out for cash-burning companies that survive on easy access to capital,” Trainer told Fortune. “These ‘zombie’ companies are at risk of going bankrupt.”
Coinbase is another example of the fervor that has developed on Wall Street in recent years. When the cryptocurrency exchange went public in April 2021, shares rose from their reference price of $250 to $381 per share.
CNBC’s Jim Cramer, a former hedge fund manager, took to Twitter after the IPO, saying that he “liked Coinbase at $475”. And he wasn’t alone, the average investment bank price target for the stock market in early 2021 was over $400 per share.
Since then, however, Coinbase stock has fallen more than 90% amid the crypto winter. And Cramer changed his mind and said in a Tweet from December 13th that he was “not a Coinbase buyer here” and called it “too soon.”
CNBC did not respond to Fortune’s request for comment.
The easy money era may have led many forecasters to believe that asset prices would continue to rise regardless of valuations, but this year has proved to be a wake-up call. Wall Street analysts have lowered price targets on many of the stock market’s pandemic darlings. It’s a new era for markets and forecasters, Tim Pagliara, chief investment officer at investment advisory firm CapWealth, told Fortune last month.
“We will resolve much of the speculation,” he said. “There will be a lot of reassessments of everything from commercial real estate to how the investing public views things like crypto.