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2000 vs. 2021 Bubble? No comparison: This time it’s much worse

Stock Market Herding

New ways to express irrational euphoria are signaling a downward turn

This time it’s different, was the refrain over two decades ago when the dot com bubble was about to pop. Now it’s “Stonks only go up”. The utter, obvious and even intentionally comical lack of meaning in that statement is also reflected in somewhat more serious metrics.

And the funny thing about basing life on platitudes, it makes actual thinking harder. Soon that will all change and the simplicity of an ultimately suicidal worldview won’t be of much use.

Beyond the crazy Robinhood frenzy and the various mini-manias, there are many other signs of delusional euphoria. One difference is that the generation that was aware (and already born) as of the 2008 crisis appears to have evolved with a cynicism that, while ignorant, is not totally naive.

The idea is that the market is rigged and that the Fed won’t “let” stocks go down “ever”. Therefore just go long, buy and hold and you will always win. Also, there’s the bizarre idea that short sellers, who were featured as heroes of a sort after the 2008 crash, in films like The Big Short, are now suddenly the bad guys and that it should be the right of everyman to go long the stock of a bankrupt,or nearly bankrupt, company and then get rich off the inevitable rise of the stock price as it is propped up by “investors” and the Fed.

This, while insane, is a different kind of insanity than was present in the dot com bubble era. It is also likely that it, along with various other delusions, will pave the way for a total collapse of not only the stock market but of the entire economy. Sort of like 2000 + 2008 on steroids.

A hint at a new way to respond to economic disaster after 2008 bailout inequality failed the masses?

The new WallStreetBets version of universal basic income would, ostensibly, be for the FED or the US gov to set up a kind of “people’s casino” stock market where stimulus checks are given out with the full expectation that they will be dumped into the stock market for bogus companies like Hertz or Blackberry or GameStop which will be bailed out, as needed. By doing this, those stocks would act as some kind of bonus multiplier for the hand-outs.

Hunger games, indeed. When times change and the music stops (again) there will be a different kind of excitement. And it will be a comforting and nostalgic feeling to look back on these days of unbridled euphoria amid pandemic danger.

Facts, figures and observations with citations of data

Below, some recent tidbits from experts that have seen more than a few mania phases come and go. Credit and sourcing for facts go to elliottwave.com and cross-currents.net.

2021 has started off with the fastest rate of IPO offerings in decades. Interestingly, the January offerings were more, with a total of 281, including initial public plus secondary, than occurred in any single month during the dot com bubble. In June of 1996, during the early phases of the boom, there were 185.

EWI VIdeo

Even more incredible, is that fact that, in a typical echo of the now deeply ingrained idea that all stocks can only go up, the twelve highest valued IPOs were of companies that lose money. According to Crunchbase, 10 of the 12 posted annual losses. And, not only that, but the average net income loss was $316 million.

Another interesting sign of the times is the situation in the Bond Markets. After a 39 year rise in yields that peaked in 1981 when the 30-yr T-note was at 15.19%, a second 39 year phase began, this time of steadily lower yields (and higher prices).

During the last 39 years nearly every extreme bounce in yields produced a subsequent crash in the stock market. This phenomena can be seen just before the 1987 crash, the 2000 dot com bust (S&P was -51%) and the 2008 crisis which resultesd in a DJIA drop of 54% from Nov. 2007 until March 2009.

Elliottwave.com and Crosscurrents.net also teamed up to create this amazing animated chart of the extreme situation in net investment liquidity. It’s an eye opener.

2021 is shaping up to be an interesting market year, no mater what comes next

And now? The same set up has just started with the recent acceleration of the gradual rise in yields, which have risen consistently over the past year. When it peaks (or gets anywhere near the levels of 2 years ago), the bursting of the current euphoria will make the swooning of ’87, 2000 and 2008 seem tame by comparison.

As a matter of fact, it is possible that the turning point has already passed. This month the resilience of the bull from March 2020 and even the entire rise from March 2009 will be severely tested.

The phrase “stocks only go up” has already gone sideways if you look at the NASDAQ, TSLA and, of course, GameStop (and how about Hertz?), but what lays just ahead will be the real tell and possible response to the question: will the roaring 20s follow the roaring teens?


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