The 10th Man

Memories from the Last Bubble

January 18, 2018

Longtime readers know my timeline by now. I graduated from the Coast Guard Academy in 1996, went to sea for two years, and then settled in the San Francisco Bay Area to work on the Coast Guard Pacific Area staff and go to grad school.

I was at the Academy from 1992-1996, and totally cut off from the outside world, and then at sea from 1996-1998, and totally cut off from the outside world. So when I rotated back to society in 1998, I wasn’t really up on current events. The last I heard, it was 1991 and we were having a great, big recession. What had happened? Everyone was happy all of a sudden.

This $5 Trillion Market Is Just Getting Started.

Don’t miss out on the ETF revolution. Get going with this must-read report from Jared Dillian.

San Francisco was a pretty magical place back then. First of all, it was a lot cleaner. The Tenderloin has always been a mess, and Market Street has always been a bit gritty, but it was better then than it is now. I never spent any time in Silicon Valley proper, but I went to business school at the University of San Francisco up at Lone Mountain, one of the most beautiful neighborhoods I have ever seen.

They had an entrepreneurship track in the MBA program, which I skipped. I was a finance major, and I was going to work on Wall Street.

Everyone else thought that was weird. Why would you go to the University of San Francisco if you are going to work on Wall Street? All my classmates were going to work in technology in some capacity.

So, my first-ever class at USF was financial accounting, and I remember the professor saying something about “venture capital.” I followed her into the elevator and asked…

“What’s venture capital?”

I was about as unsophisticated as you could possibly get, and I was plopped in the middle of one of the greatest stock market bubbles in recorded history. It took me a while to realize that was unusual.

I drove in and out of the city every day, and what I started to notice was that all the billboards were for internet companies. I remember a big one for WebEx right before I went over the Bay Bridge. I remember going to the Oakland Coliseum to see the A’s and seeing advertisements for Yahoo! and such.

This was before the time I spent on the P. Coast, where after one options expiry, my firm went out to dinner at a seafood place downtown called Blue. It was opulent beyond description. I had all the free food I could eat, so at least I was getting something tangible out of this bull market.

I missed the Pets.com commercial. I didn’t have a TV.

What I knew was that people were making money all out of proportion to their intelligence and work ethic, which has become my standard definition of a bubble.

There were some dumb people on that options trading floor making very good money. Some of them were making ridiculous money. They were lucky enough to be in the right place at the right time, which they didn’t really realize.

One day, the San Francisco Chronicle sent some reporters down to the trading floor. They interviewed one of the traders, who said: “I can’t believe how much money I’m making!”

The Euphoriameter

To be a good trader, you need to have a good memory. I have very specific, experiential memories about the last big stock market bubble. I remember all the Coast Guard guys I worked with day-trading stocks. And making money! It was hard not to.

My Twitter friend Callum Thomas posted this chart over the weekend. He calls it “The Euphoriameter,” which is a composite of VIX, bullish sentiment, and forward P/E. As you can see, we are getting back to where we were in the year 2000. There might be a better way to construct a Euphoriameter, but this is probably a pretty good approximation.

Or, you could just gaze at this picture of CoinDaddy, a bitcoin rapper.


Source: The New York Times

This $5 Trillion Market Is Just Getting Started.

Don’t miss out on the ETF revolution. Get going with The 5 ETF Trading Strategies You Should Know About Before Investing, from Jared Dillian.

We’re there. My guess is, the tomb is sealed and we just don’t realize it yet.

The one thing about 2018 versus 2000 is that our society, our government, our central bank now have absolutely zero tolerance for financial pain. My guess is that the jawboning starts when the market drops five percent, when the VIX is getting into the high teens. In bull markets, jawboning works. In bear markets, it does not.

In every bear market, people lack imagination as to how bad it will get. That is true of the last one. For sure, there were a lot of people saying that housing prices would go down, and homebuilders, and the banks. Not many people thought it would blossom into a full-blown financial crisis.

And a bear market is one thing, but to get an actual financial crisis requires leverage. Is there leverage in bitcoin? Some—there is evidence that people are using credit cards to buy it. But not as much as there was in residential real estate ten years ago. Is there leverage in stocks? It’s elevated, but not unmanageable. But the problem with leverage is that sometimes, you don’t know it’s there until people start deleveraging.

People will always find something new to speculate on. This time around it is bitcoin, last time it was houses, the time before that, tech stocks, and maybe commercial real estate before that.

Next time: who knows? But the good thing is that all the young people will have seen an honest-to-goodness bear market, and will know what one looks like.

I am a terrible late-stage investor. I would have been one of those guys feasting on cheap stocks in 1982, but I would have been out by 1986, missing out on the next 14 years. It’s something I’m working on. I read that New York Times article about the bitcoin idiots. Would I like to be sitting on a phone number’s worth of crypto? You bet.

Maybe next time.

One Final Thing

I’m actually going to be moderating a panel on cryptocurrencies at Mauldin Economics’ upcoming Strategic Investment Conference, which takes place in San Diego from March 6-9. My guess is, it’s going to be a pretty fiery panel—which is great!

I’m also going to be talking about ETFs, and be interviewed on stage. The SIC has an incredible line up this year, including John Burbank, Niall Ferguson, Mark Yusko and Jeffrey Gundlach. You should join me there—it’s going to be fun.

Jared Dillian
Jared Dillian

 

Get Thought-Provoking Contrarian
Insights from Jared Dillian

Discuss This

0 comments

We welcome your comments. Please comply with our Community Rules.

Comments

Jack Lochrie

Jan. 18, 7:48 p.m.

Dear Jared,

John Kenneth Galbraith had an astute observation in his classic The Great Crash 1929 that we would do well to remember: “In the sixties as in the twenties men intended by nature for mentally undemanding toil became rich for a little while.”

Jack Lochrie

bunnellr54@gmail.com

Jan. 18, 10:47 a.m.

Jared,

As I am much older, I feel the first name is not disrespectful.

I’m not a bitcoin nut, but I see where it might be useful to play the volatility in a non-retirement-threatening manner.  I may have 20% in gold right now, but I’m thinking of 1% when the cryptos drop a lot (like now).  Any mechanisms/platforms you would recommend for buying/selling?

Stick it in a note in the future.

Ciao,

Bob


Use of this content, the Mauldin Economics website, and related sites and applications is provided under the Mauldin Economics Terms & Conditions of Use.

Unauthorized Disclosure Prohibited

The information provided in this publication is private, privileged, and confidential information, licensed for your sole individual use as a subscriber. Mauldin Economics reserves all rights to the content of this publication and related materials. Forwarding, copying, disseminating, or distributing this report in whole or in part, including substantial quotation of any portion the publication or any release of specific investment recommendations, is strictly prohibited.
Participation in such activity is grounds for immediate termination of all subscriptions of registered subscribers deemed to be involved at Mauldin Economics’ sole discretion, may violate the copyright laws of the United States, and may subject the violator to legal prosecution. Mauldin Economics reserves the right to monitor the use of this publication without disclosure by any electronic means it deems necessary and may change those means without notice at any time. If you have received this publication and are not the intended subscriber, please contact service@mauldineconomics.com.

Disclaimers

The Mauldin Economics website, Yield Shark, Thoughts from the Frontline, Outside the Box, Over My Shoulder, Transformational Technology Alert, Rational Bear, The 10th Man, Connecting The Dots, Stray Reflections, Street Freak, ETF 20/20, Macro Growth & Income Alert, In the Money, and Mauldin Economics VIP are published by Mauldin Economics, LLC. Information contained in such publications is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. The information contained in such publications is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in such publications are those of the publisher and are subject to change without notice. The information in such publications may become outdated and there is no obligation to update any such information. You are advised to discuss with your financial advisers your investment options and whether any investment is suitable for your specific needs prior to making any investments.
John Mauldin, Mauldin Economics, LLC and other entities in which he has an interest, employees, officers, family, and associates may from time to time have positions in the securities or commodities covered in these publications or web site. Corporate policies are in effect that attempt to avoid potential conflicts of interest and resolve conflicts of interest that do arise in a timely fashion.
Mauldin Economics, LLC reserves the right to cancel any subscription at any time, and if it does so it will promptly refund to the subscriber the amount of the subscription payment previously received relating to the remaining subscription period. Cancellation of a subscription may result from any unauthorized use or reproduction or rebroadcast of any Mauldin Economics publication or website, any infringement or misappropriation of Mauldin Economics, LLC’s proprietary rights, or any other reason determined in the sole discretion of Mauldin Economics, LLC.

Affiliate Notice

Mauldin Economics has affiliate agreements in place that may include fee sharing. If you have a website or newsletter and would like to be considered for inclusion in the Mauldin Economics affiliate program, please go to http://affiliates.ggcpublishing.com/. Likewise, from time to time Mauldin Economics may engage in affiliate programs offered by other companies, though corporate policy firmly dictates that such agreements will have no influence on any product or service recommendations, nor alter the pricing that would otherwise be available in absence of such an agreement. As always, it is important that you do your own due diligence before transacting any business with any firm, for any product or service.

© Copyright 2018 Mauldin Economics