The bubble is building; how did famed gold investors make their fortune?

Famed investor Stanley Druckenmiller has recently said that the current return to risk ratio in broad equities is the worst that he has ever seen in his career, and that is the sentiment shared by Bob Thompson, portfolio manager at Raymond James.

Thompson told Kitco News that this market is “entirely liquidity driven.”

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“This market rally has been totally fed by the Fed over time. The bubble is building. We have corporate debt. Here in Canada, we have massive consumer debt,” he said. “This is how it happens. People are going to blame the coronavirus for this, but the coronavirus is just the pin that popped the bubble. The bubble was already there.”

Thompson’s comments come as China passed legislation to enact special security laws in Hong Kong that could strip away the city’s autonomy and freedoms, analysts say.

“People have to realize that China is a communist country. They use capitalism to their advantage…so sooner or later they were probably going to do this to Hong Kong. I think they chose this opportunity because things are in a bit of turmoil right now anyway. So obviously it’s going to be a big issue with trade going forward and the coronavirus is going to be played as a political issue so we can blame somebody,” he said.

However, with the Federal Reserve continuing to pump liquidity into the monetary system, investors are likely to shrug off any escalating tensions between the U.S. and China for now.

In terms of investing strategies that have worked, Thompson’s book “Stock Market Superstars” details the way some of the best fund managers have picked stocks, one of whom is Eric Sprott, former chairman of Sprott Inc.

“There were a few things that I learned, one of them I learned from Eric [Sprott] is conviction. You have to have conviction, you can’t pay attention to what other people are saying. You have to do your own research,” he said. “There’s a saying, ‘stock market corrections are when stocks are returning to their rightful owners’ and I think that’s a great strategy, because if you have conviction you’re going to stick with it.”

By Kitco News