One For The Ages
Summary
- The stock market has set many records this year. After putting in the fastest 10% decline from a new high, it then put in the fastest 20% and 30% declines.
- An unprecedented boom in money printing for the explicit purpose of supporting asset prices is certainly part of the reason for the recovery but it is also important to note what that money printing has inspired: an unprecedented boom in financial market speculation by retail traders.
- Combine massive money printing with mass speculation and record low liquidity (in futures and almost every other market) and you get the fastest 50-day rise in the stock market on record.
I do a good deal of reading every day and I share the best of what I find on Twitter. The purpose of this reading is not so much to find out what's really going on as it is to try to understand how people feel about what is going on. What are the trends and narratives that are important to market participants and where are they in their life cycle.
One trend I've been following for a while now is the growing participation in the financial markets on the part of young individuals. Since most brokers went commission-free, following in Robinhood's footsteps, the interest in trading has gone through the roof. This week feels like the narrative is reaching a crescendo.
So I thought it might be important to immortalize some of the stories in my recent Twitter feed in a blog post here. During the dotcom mania, my friend Bill Fleckenstein tracked the bubble in what he called, "The Mania Chronicles." Consider this my very limited version of the same.
The stock market has set many records this year. After putting in the fastest 10% decline from a new high, it then put in the fastest 20% and 30% declines. Since then, however, it's now put in the fastest recovery from a crash in history.
An unprecedented boom in money printing for the explicit purpose of supporting asset prices is certainly part of the reason for the recovery but it is also important to note what that money printing has inspired: an unprecedented boom in financial market speculation by retail traders.
Combine massive money printing with mass speculation and record low liquidity (in futures and almost every other market) and you get the fastest 50-day rise in the stock market on record.
As a result, we now have an army of traders who believe they are the second coming of Warren Buffett. While the Oracle of Omaha now looks foolish for selling his airline stocks, those who bought them up over the past few months are gloating like you rarely see in this game.
Like Mark Cuban said, "everybody is a genius in a bull market," and the largest 50-day gain in history is minting a ton of geniuses right now.
To get a sense of the mindset of many of these traders, the Wall Street Journal spoke to a few of them and they make no bones about gambling with the funds the government sent them as part of the CARES Act, trying to double or triple it in just a day's time.
In 1999 and 2000, day traders went for the hottest internet stocks of the day in trying to make outsized returns; eventually many went bankrupt. Today, they're looking for outsized returns in the stocks that have already filed for bankruptcy protection!
But if there's a lesson from that earlier period, it's this:
This rally has humbled not only Warren Buffett but also Stan Druckenmiller, Sam Zell, Carl Icahn, Paul Singer, Jim Rogers and a host of other true geniuses of the industry whom have bet against it. It seems like it may soon be time for it to carry out those betting with it.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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