The Year Of Living Dangerously

2021 is now in the rear-view mirror and I believe that future financial historians may regard it as the year of peak speculation. While the history of American markets is littered with periods of irrational exuberance, none of those episodes can really match the current market for outright delusion and the blatant disregard for basic investment discipline. 

Where to begin? It was the year that brought us “meme stocks,” companies whose share prices skyrocketed precisely because their business prospects were inarguably bleak. It was the year that launched thousands of new crypto currencies, more than quintupling the market capitalization of these new “assets,” (from $578 billion in November 2020 to more than $3 trillion a year later). Although few people can explain, or understand, the utility and features of these new currencies, the Bloomberg Galaxy Crypto Index nevertheless rose by more than 160% over the course of the year.  

It was the year that brought us non-fungible tokens, otherwise known as NFTs, virtual assets that don’t exist in the real world but are discussed as if they were precious artifacts brought back from the future. According to data from DappRadar, NFTs sales in the third quarter alone were $10.7 billion, eight times the pace in the second quarter of the year. In 2021, people frequently paid thousands of dollars for virtual sneakers, and someone paid $450,000 to acquire a virtual piece of property in the “Snoopverse,” a digital world created by rapper Snoop Dogg. 

It was a year that saw more than 1,000 companies (a record) offer initial public offerings (IPOs) on U.S. stock exchanges, more than four times the volume averaged over the last decade. These newly public companies raised a record $315 billion from investors. Never before has that total surpassed $200 billion. Even more unusual was that more than half of those IPOs were special purpose acquisition companies, or SPACs, black box investments that are simply stock ticker symbols in search of unproven businesses. Investors didn’t even know what they were buying, but they just bought anyway. 

It was the year of record share buybacks, in which US companies bought nearly one quarter trillion dollars of their own stock in just the third quarter. It was a year of record mergers and acquisition activity, with global deal flow topping $5 trillion for the first time.