Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Shades Of 1999 As 'Market Mania' Returns In 2020

By Lance RobertsStock MarketsDec 28, 2020 05:14AM ET
Shades Of 1999 As 'Market Mania' Returns In 2020
By Lance Roberts   |  Dec 28, 2020 05:14AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

“Maybe this time is different. Those words, supposedly the most dangerous to utter in the investing realm, came to mind amid the frenzied pops in the highly anticipated initial public offerings recently.” That quote was from Randall Forsyth discussing why the current market mania reminds him of the “Shades of 1999.”

There are certainly many similarities between today and 1999. From exceedingly high valuations to a rush by private equity investors to IPO overly priced companies as quickly as possible, prices are high. Of course, such is not possible without an underlying “Fear Of Missing Out, or F.O.M.O.” by retail investors.

As discussed previously, “valuations” are a representation of market excesses. In other words, psychology is key to the formation, and inflation, of a financial bubble. However, it requires a supportive underlying narrative, a “siren’s song” to lure “sailors onto the rocks.”

Price measures the current “psychology” of the “herd” and is the clearest representation of the behavioral dynamics of the living organism we call “the market.”

The Bull Case

My colleague, and always a good read, Greg Feirman at Top Gun Financial Planning, recently had a great post.

“I discovered what I believe to be the strongest bull case yesterday in an article by Rothko Research on Seeking Alpha. I can do no better than to quote from “Letter To Equity Bears: Do Not Underestimate The Force Of Liquidity”

  • In the past cycle, the Fed has become very sensitive to a sudden tightening in financial conditions, especially when equities start to fall aggressively
  • Another $5 trillion USD is expected to resume in the coming months.
  • Such would send US equities to new all-time highs
  • Any bear retracement in the near term is a good opportunity to “buy the dip.”
  • It is not a good time to try to short equities

One crucial thing that we have learned over the past 12 years is that the Fed has become very sensitive to a sudden tightening in financial conditions, especially when equities start to fall aggressively.”

The chart below certainly makes his point.

Variant Perception also chimed in with “It’s The Most Wonder-Bull Time Of The Year.”

Reflation narratives are becoming consensus, but there is little reason to be contrarian for contrarian’s sake.”

Of course, this certainly brings us to Bob Farrell’s Rule #9:

“When all the experts and forecasts agree – something else is going to happen.”

The Beatings Will Continue

As noted, the “psychology” of a “mania” requires a narrative. In this case, it is the “Fed Put.” As Greg noted:

“Why did investors underestimate the force of monetary liquidity after 10 years of sample data? We mentioned previously that stocks could diverge quite significantly from fundamentals amid the massive Fed intervention and the strength of the FANG stocks in the COVID-19 environment. We can notice the titanic rise in central bank assets has ‘perfectly’ matched the strong rebound in the mega-cap growth stocks in the past 8 months.”

In other words, the Fed’s primary goal has been to allow the “beatings to continue until morale improves.”

The repeated rounds of liquidity, interventions, and accommodative policies have trained investors to take on more “risk.” Such was the point we recently discussed in “Moral Hazard.”

“What exactly is the definition of ‘moral hazard.’ It is the lack of incentive to guard against risk where one is protected from its consequences, e.g., by insurance.”

Moral Hazard

Where do we see evidence of “moral hazard” currently?

You don’t have to look too hard to find it.

  • Wall Street is rushing IPO’s to market to fill “speculative demand” from retail investors.

  • Retail investors are piling into trading equities.

  • Speculators are paying astronomical multiples for IPO’s of companies with negative incomes.

New Issues Losing Money
New Issues Losing Money

  • The rush to invest billions into S.P.A.C.”s, shell companies with no business, in hopes they can find the next “big deal.”

SPAC Equity IPO Issuance
SPAC Equity IPO Issuance

  • Speculators in the options market increase their bets to leverage returns on risky stocks.

You get the idea.

Speaking of “SPAC exuberance,” Bespoke Investment Group recently published one statistic showing the market’s feeding frenzy. Of the 287 SPACs that have come to market over the last two years, just six are down 10% or more from their IPO price. In contrast, 15 SPACs have more than doubled from their IPO price.

“In other words, more than twice as many SPACs are up 100% as down 10%. If that isn’t a sign of exuberance, we don’t know what is!” – Bespoke

Such activities will not end well. However, the psychology” is that since the Federal Reserve will not let the markets fall in price, there isno risk.”

Seen This Picture Before

We have written extensively about the extreme extension we see in the markets. Such is due to the Fed’s ongoing “repo” operations in 2019, and current QE directly fueling a sharp rise in asset prices. The problem is prices are surging at a time when both corporate profits and earnings growth remain weak.

Notably, the ongoing Fed policies have lured investors into an extreme sense of complacency, as witnessed by the sharp drop in “short-interest” in the S&P 500. This belief the markets can no longer have a correction is fueling an equity chase in companies with the most inferior underlying fundamentals.

The last time we saw asset prices surge by 20%, or more, in a month, particularly in companies with no revenue, unfavorable valuations, and poor business models, was in 1999. The chart of Qualcomm (NASDAQ:QCOM) in late 1999 is a good example.

QCOM Weekly Chart
QCOM Weekly Chart


Unfortunately, for investors in QCOM, by the end of 2000, that 95% gain turned into a 10% loss. But QCOM was not alone. The only difference is that the vast majority of the other companies like Global Crossing, Enron, Worldcom, Lucent Technologies, Sun Micro, and many others no longer exist in the original forms today, if at all.

Here is another excellent example, if you had bought CSCO at the turn of the century, you would still be down by 10% on your position 20-years later.

Cisco Weekly Chart
Cisco Weekly Chart


Over the last 5-years, AAPL has barely grown revenue, yet its stock price has gone parabolic. I love the company, but they will never grow revenue to justify the current price.

Apple Weekly Chart
Apple Weekly Chart


The same for DIS.

Disney Weekly Chart
Disney Weekly Chart


Many suggest stocks are rising in anticipation of growth; such was also the “rationalization” for the last 5-years.

In other words, there is an essential difference between “hoping for growth” and getting it.

The New Breed

Today, we see the same chase in companies that exhibit similar characteristics to what we saw in 1999:

  • Flawed business models with little, or no, “protective moat.”
  • Little or no earnings
  • Excessively high or negative valuations
  • Prices are rising on “hope” these companies will mature into their valuations in the future.

Sure, companies from Tesla (NASDAQ:TSLA) to Zoom Video might be the next Amazon (NASDAQ:AMZN) of the “” mania to survive and prosper. However, the odds are highly stacked against that being the case.

Here are a few examples of why it looks like investors are once again “Partying Like It’s 1999.”

Zoom Video

TWLO Weekly Chart
TWLO Weekly Chart

Tesla Weekly Chart
Tesla Weekly Chart

CMG Weekly Chart
CMG Weekly Chart

PINS Weekly Chart
PINS Weekly Chart

CRWD Weekly Chart
CRWD Weekly Chart

SQ Weekly Chart
SQ Weekly Chart

These are but just a few examples. The market is replete with many companies whose price far exceeds any rational grasp of the underlying fundamentals.

But such is always the case when individuals throw out “fundamentals” to chase “price.”

Retail “Investor” Or “Speculator?”

In today’s market, the majority of investors are simply chasing performance.

But, this isn’t “investing,” it’s “speculation.”

Think about it this way.

If you were playing a hand of poker and dealt a “pair of deuces,” would you go “all-in.”

Of course, not.

The reason is you intuitively understand the other factors “at play.” Even a cursory understanding of the game of poker suggests other players at the table are probably holding better hands, which will lead to a rapid reduction of your wealth.

Ultimately, investing is about managing the risks that will substantially reduce your ability to “stay in the game long enough” to “win.”

Robert Hagstrom, CFA penned a piece discussing the differences between investing and speculation:

“Philip Carret, who wrote The Art of Speculation (1930), believed “motive” was the test for determining the difference between investment and speculation. Carret connected the investor to the economics of the business and the speculator to price. ‘Speculation,’ wrote Carret, ‘may be defined as the purchase or sale of securities or commodities in expectation of profiting by fluctuations in their prices.’”

Chasing markets is the purest form of speculation. It is just a bet on prices going higher than determining if the price paid for those assets is a discount to fair value.

Graham & Dodd

Along with David Dodd, Benjamin Graham (NYSE:GHM) attempted a precise definition of investing and speculation in their seminal work Security Analysis (1934).

An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.”

There is also an essential passage in Graham’s The Intelligent Investor:

“The distinction between investment and speculation in common stocks has always been a useful one and its disappearance is a cause for concern. We have often said that Wall Street as an institution would be well advised to reinstate this distinction and to emphasize it in all its dealings with the public. Otherwise the stock exchanges may some day be blamed for heavy speculative losses, which those who suffered them had not been properly warned against.”

Surviving The Game

Regardless of whether you believe fundamentals will ever matter again is irrelevant. What is essential is that periods of excess speculation always end the same way.

For now, Dave Portnoy has garnered a legion of followers. However, Dave’s financial future is entirely secure after selling his company to Penn National for $450 million. So, when things go wrong in the market, he will be just fine financially. However, for the host of inexperienced, over-confident millennials who follow him, many have the financial livelihoods on the line.

I get it.

If you are one of our younger readers, who have never been through an actual “bear market,” I wouldn’t believe what I am telling you either.

However, after living through the Crash of ’87, managing money through 2000 and 2008, and navigating the “Great Crash of 2020,” I can tell you the signs are all there.

A real bear market will happen. When? I don’t have a clue.

But it will be an unexpected, exogenous event that triggers the selling.

It always appears easiest at the top, and at the bottom retail investors will not want to buy.

Historically, the environment we are living in currently has not worked out well for investors. However, in the short-term, the “irrationality” will last long enough to convince you “this time is different.”

“History doesn’t always repeat itself, but it often rhymes.” – Samuel Clemens

Shades Of 1999 As 'Market Mania' Returns In 2020

Related Articles

Craig Erlam
Record End To The Week By Craig Erlam - Jul 23, 2021

Optimism Builds Into Weekend Stock markets are ending the week on a positive note, with earnings continuing to surprise to the upside and COVID fears being brushed aside as the S&P...

Guy S. Ortmann, CMT
NDX Makes New Closing High By Guy S. Ortmann, CMT - Jul 23, 2021

The major equity indexes closed mixed yesterday, with negative internals on the NSYE and NASDAQ Composite as trading volumes declined on both exchanges from the prior session. The...

Shades Of 1999 As 'Market Mania' Returns In 2020

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (4)
Worthless Luke
Worthless Dec 28, 2020 2:12PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Thank you Lance! Great article, as always! Whatever happens, this is a wonderful time to trade. I'm fortunate to learn about the full market cycle at the beginning of my trading career. I'll remember the lessons from this time at the end of the next one 40 to 60 years from now.
Jose Lourenco
Jose Lourenco Dec 28, 2020 10:33AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I could not agree more. I consider myself a layman in investment, despite being at it for 15years. Only have gut feeling, and what I consider common sense. A simple comparison of the evolution of company turnover or profits to stock value (as is clearly presented in this article, for several cases: Apple, Cisco, etc) clear evidence that this cannot go on for ever. I believe that many KPI's from stock "technical analysis" suffer from a "highly positive feedback" problem. A stock that has gone up by 200 or 300% in the last 1 or 2 years, continues to have most of the technical indicators as "BUY" or "STRONG BUY". Is that not senseless? It wouls be very interesting to see what the technical indicators said just before the last significant corrections in the last 10 years. This is 100% "herd behabiour" - leveraged by positive feedback indicators. I firmly believe that a significant correction is coming in the next 4 to 8 weeks.
Adrián Ruiz Carvajal
Adrián Ruiz Carvajal Dec 28, 2020 7:07AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The source:
Adrián Ruiz Carvajal
Adrián Ruiz Carvajal Dec 28, 2020 7:06AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Woops, wrong ZoomZoom had a big year. As it became the go-to communication tool for millions of us at home its user base, revenue and share price exploded in the “hockey stick” way that so many start-ups desire. But, there was another beneficiary of its success as well: Zoom Technologies, a tiny company with absolutely no affiliation to the video conferencing company you're familiar with.It seems as though some people who thought they were investing in Zoom Communications (the real one) were actually buying Zoom Technologies (the other one) by accident. Those mistakes pumped the share price of the wrong Zoom up by 1800% by late March — a tidy return to anyone who made the mistake early and benefited from others doing the same later.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email