Take it from a “dinosaur” – history always repeats itself when it comes to market bubbles
“What has been will still be, what has been done will still be done; There is nothing new under the sun. – Ecclesiastes 1: 9
I’ve been called a lot of names lately on Twitter. Some are even riddled with profanity (which I block immediately.) But for the most part, I laugh and let it go. It all started when I decided to face Michael Saylor in a bitcoin vs. gold debate. Saylor is one of the biggest supporters of bitcoin, if not the biggest. I summarized our debate in a recent post. The debate generated a lot of interest and started a fierce battle on Twitter between bitcoin supporters and the rest of us apostates who still believe in gold as a store of value. Opinions about bitcoin are mostly binary in nature. There are lovers and enemies. He’s likely to stay there until some new and better technology comes along, maybe. But at what value? Only time will tell.
But the bitcoin debate raises another much bigger issue that has concerned me for several years: the fact that we may be witnessing a financial bubble that will eventually burst and drag us into another financial crisis. And make no mistake, the next crisis could lead to a much worse depression than the Great Recession of 2007-09.
I am far from being alone in my concern. There are many others who issue the same warning. But we are outnumbered by much louder voices emanating from Wall Street, the mainstream media and, more importantly, in recent years, the internet. The euphoria that has recently spiked the prices of cryptocurrencies, tech stocks, PSPCs, or any number of flavor of the month memes stocks is at its worst. The current sentiment in the financial markets is starting to sound familiar.
Which brings me back to the name calling.
Bitcoiners and stock speculators undoubtedly take great pleasure in declaring that I am too old to understand that this time is different. Apparently, I just don’t understand that the world has changed and that the old rules that have governed the markets through the centuries no longer apply. They troll me with taunts like “Have fun staying poor, boomer” and “Haven’t gone to bed, old man.” And my favorite (with memes), “You’re a dinosaur”.
Mocking dinosaurs is nothing new. I was called the same during the heyday of the dot-com bubble in the late ’90s, when I had the temerity to question the insane valuations attributed to stocks during that bubble. I remember having dinner with a group of tech investors, where I made a flippant comment that I couldn’t understand the ratings given to these companies by big business analysts on Wall Street. By the reaction, you would have thought that I had committed the Seven Deadly Sins in one sentence. It was the first time I had been called a dinosaur (I was in my 40s!), But not the first time I had witnessed irrational exuberance and subsequent crash.
I started my career in a trading desk at Merrill Lynch in 1978. US stocks had been in a brutal bear market for nine years and had four more years to go. But any company specializing in precious metals or oil was at the start of an incredible bull run that eventually lasted until 1981. As we got closer to the top, I had the privilege of witnessing the pinnacle of. stupidity. Valuations for companies that had no value (much like dot-com stocks) exploded. Investors were driving up stock prices on the basis of rumors and fairy tales. They convinced themselves that the price of gold and oil would go up forever. You couldn’t do anything wrong. Throw a dart at anything in motion and you were sure to win some cash. It’s a bit like the cryptocurrency space today. And when it ended, it ended suddenly and with little warning. Most stock prices eventually made their way to their intrinsic value, which is zero.
I had several other similar experiences, including the crash of 1987 and more recently the financial crisis of 2008. Each crash was preceded by the same conviction that “this time it’s different”. Sadly, history proves that these things are never different.
A book to read is, “This Time Is Different: Eight Centuries of Financial Folly,” by Carmen M. Reinhart and Kenneth S. Rogoff. The authors explain my point perfectly. Throughout history, rich and poor countries alike have lent, borrowed and worked their way through an extraordinary series of financial crises. And each time the experts have said, “this time is different,” claiming that the old valuation rules no longer apply and the new situation bears little resemblance to past disasters. A good example is the 1920s, when bankers and economists predicted that wars would not happen again, that the future would be stable, and the markets had reached a permanent plateau. Of course, history has proven them wrong.
Don’t rely on expert advice, either. Otherwise, savvy people ignore the telltale signs of a bubble when they are gripped by “this time it’s different” syndrome. Think of the brilliant Federal Reserve Chairman Alan Greenspan, who initiated the lax monetary policy that created the current mess we are in now. Or any Fed chairman since. In my opinion, they wouldn’t recognize a bubble if it stood on a table in women’s underwear and sang “Happy Bubbles Are Here Again”. They all have a perfect score to be wrong. And that goes for Wall Street economists and analysts. They get paid to keep the game going. When one sector goes bankrupt, they simply move on to the next. If the whole system goes bankrupt, they plead for a government bailout. And they get them.
However, the biggest vector of disinformation is the Internet. Granted, there is a lot of great content on the internet that gives solid, unbiased advice that you won’t get from Wall Street businesses. But there are a lot more trash ideas being peddled by all kinds of charlatans, with huge following. You only need to read the comments under each of their posts to get a clear idea of how much of the language is going worship. Wild exaggerations and conspiracies are littered everywhere. All the signs of a bubble begging to be stung are screaming at us. Somewhere there is a pin waiting for the right time to pop it.
A little free advice to all my readers: Youth is not an accomplishment. Wisdom comes from experience.
An old dinosaur
PS I recently watched an interview on Kitco with market strategist Chris Vermeulen, in which he showed a chart that depicts where he thinks we are in this market cycle. The accompanying commentary is hilarious and fair. He succeeded. My three favorite stages were:
1) Euphoria – “I am a genius. We are all going to be rich.
2) Anger – “Why did the government allow this to happen?”
3) Depression – “My retirement money is wasted. I am an idiot.”
Be safe there.