“The Only Thing New in the World is the History You Don’t Know”
Dear Millennials “Welcome to the Jungle.”
“Welcome to The Jungle” Guns and Roses
Welcome to the jungle
We’ve got fun ‘n’ games
We got everything you want
Honey, we know the names
We are the people that can find
Whatever you may need
If you got the money, honey
We got your disease
Bernie Madoff’s mother ran a “bucket shop” that was shut down by the SEC 30 years before her son ended up in handcuffs for perpetrating the greatest Ponzi scheme in American history. A bucket shop profits from clients’ trades without them knowing about it – it is basically an unethical broker. In my 2nd quarter letter, “Infatuation”, we discussed the unstoppable power of genes leaving current Millennials to finally jump into the speculative pool of stock trading, even though their parents struck out at this dangerous exercise 20 years ago.
For all Millennial readers, if you visited a casino in your lifetime only to see your money quickly disappear, you have not seen anything compared to trading versus professionals. So to all you Robinhood traders I say, “Welcome to the Jungle.” The market has fun and games for whatever you may need and “if you got the money honey” the street has “your disease.” The market is lining up your diseases -options trading, triple leveraged ETFs, coin- based currencies, tech stocks trading at 100x revenues and IPOs galore.
Playing the casinos is pikers next to trading the market. The 1999 bubble saw Nasdaq stocks fall 78% from their peak.
After years of writing that we have not seen the speculative phase of this bull market because retail trading never joined the frenzy, ka-boom a generational health crisis strangely coincided with an explosion in Joe Six Pack stock trading. There is now no question that we are starting to reflect behaviors of 1999. The good news is we are nowhere near the speculative valuations of 1999 bubble and a 78% correction is not in the near- term cards. However, in the current sea of liquidity provided by the central bank’s largesse, we could see an explosion post vaccination that would see us revisit 1999.
The entire 1999 bubble thesis comparison is currently moot due to the only chart that really matters – 10-year treasury rates being at 1%, considerably lower than the dividend on the S&P and 500% lower than 1999 interest rates. Even more urgent is the fact that in 1999 the Fed was raising interest rates, now in 2021 the Fed is planning to keep interest rates at zero for “the foreseeable future.”
Let us review some of the recent phenomena that grinds us slowly back toward the internet bubble days. Politics change, taxes change and weather changes, but human nature never changes.