It's like 1927 all over again...
Since 2019, the number of retail market participant has increased dramatically due to trade commissions falling from $7.95 to zero and the temporary shut-down of sports gambling due to COVID. The number of hyper-active participants has sky rocketed as the group of people who grew up on trading crypto have now discovered securities and recently precious metals.
It’s pretty obvious that highly leveraged traders out of Asia are driving markets right now. Japan drove the last decade leading into COVID at a measured, calm, almost thoughtful pace, but now Korea, China and the like are driving the market by whips and chains today and you can see the change in temperament as the market thrashes around. And if you follow Chinese media you can see the mobs reacting when this all goes poorly.
People have began to compare gold to a penny stock now. The rest of the world is beginning to understand the true nature of public markets. There is no “investing” in public markets. You are speculating or gambling. Anything denominated in cloth with a picture of a dead guy on it is bullshit.
There is an interesting math problem that needs consideration at this point though and that is how does all of this change the buoyancy of today’s bull-ish market affect the sustainability of the bull-ish market?
When I watch YouTube videos of over-lit happy idiots with bare white walls in the background discussing their strategies I find myself wondering are they the shoe shine boys of this market or the Charles Dows? The only real difference is Dow died before he had the change to go bankrupt in 1929. He didn’t understand the market at all he just didn’t live long enough for people catch on.
Dumb ideas that make you money can make you money for a very, very long time or they stop working tomorrow. And it’s really just the luck of when you were born that matters. Enter the market at the right time and you will be rich even if you aren’t smart enough to know which end of the plunger goes in the toilet. The fact the wooden handle also works doesn’t mean you know what you are doing. It doesn’t mean the dumb idea was any less dumb when it was working than when it failed spectacularly. Fun video there. Upstart was at $392 at the time. It promptly fell to $13.
A lot of people seem to think that the rampantly stupid only appeared at the end of the 1920s but really they had been there the whole time and that the “roaring” twenties name has tricked people into believing that decade alone is relevant. In reality, it all started in the late 19th century.
AI isn’t in my estimation the internet. It’s railroads. And it started back in the 1990s with companies like Dragon Naturally speaking. The utility phase is passed. We are now in the Orient Express fancy but useless phase.
If AI is the modern railroad boom, where are we in that life cycle? Are we riding trains to work today? Obviously not. Will we have Jetsons like AI robots in our homes any time soon. Probably not.
Railroad stocks took off in the 1890s that boom happened decades before the market really soared, so is the market really just in the doldrums of the 1900-1910s or teetering? It wasn’t until the rest of stocks caught up that the market completely collapsed. And then by 1935, railroad stocks were insignificant. And there is quite a lot of evidence this has already happened.
Media call it market breadth and say the market rally has broaden. Which the pundits think is a good thing.
So this naturally begs the question if we are drawing parallels to the early 20th century, in what year are we today?
Based on the dollar-volume increase, we are in late 1927. Let’s say October of 1927. Sorry if that answer was too abrupt.
I didn’t want to torture you with math there.
If anyone else is trying to make this connection there is considerable variability to where you can draw a starting parallel.
Most analysts tend to find it easier to work backwards than to work forwards. Because they make money writing books explaining the past not in trying to understand the present or glimpse the future. And it’s a lot easier to line up charts on the precipitous events than to figure where the indistinguishable start is/was so keep that in mind.
But, I like to think upfront so I can feel stupid later.
This late 1927 guess (it’s not a hypothesis just a guess) makes logical sense based on the sudden rush to IPO of companies like SpaceX.
But, who knows?
We could be in 1923 or the clock is ticking in 1929. It is very difficult to compare today’s market where a pipe fitter in Canada who failed fractions is riding a market being thrashed around by a billion people in Asia and the President shits himself on live TV.
The amount of liquidity that has hit the market since 2019 is just incomparable to any market era really and the average market participant today’s financial literacy is the equivalent of having read a laminated placement. If the entire market is shoe shine boys does reality matter any more?
Hedging is better than sex in a market like this. I am not advising you just pointing out that fact.
If anyone is a market glutton like me here is a great paper you might like.