Former U.S. Treasury Secretary Lawrence Summers warned of the risk of a “spontaneous deflating of financial markets” that have been pumped up by retail buying and exuberant investors.
There is “a lot of euphoria,” Summers said at an American Council for Capital Formation webinar on Tuesday -- pointing, among other things, to cryptocurrencies, so-called meme stocks and technology shares. “Super-excited retail is usually a sign of trouble to come,” he added.
Summers, who is a paid contributor to Bloomberg and a Harvard University professor, also saw potential signs of trouble in the actions of more seasoned investors.
“There are many who are chasing yield by taking on extra risk,” he said. “Highly sophisticated endowments and pensions funds are behaving in that way. In so far as that is happening, it points to something that may or may not be sustainable.”
Stock prices slid Tuesday as investors awaited Wednesday’s results of the Federal Reserve’s final policy-making meeting of the year. Central bank officials are expected to double the pace of tapering the Fed’s bond-buying -- to $30 billion a month, wrapping up in March -- while forecasting two interest-rate hikes next year, according to economists surveyed by Bloomberg News.
