In the late 90’s I was day trading options. The late 90’s were the lead up to the .com crash. In the early 90’s small caps exploded as tech blew up. I knew guys who made 10M on things like Compaq and Sysco and Sprint buying stock at 10 cents per share. Later they levered the hell out of it and we got Long Term Capital Management. LTCM blew up and the NY banks covered the leverage. The market narrowly missed catastrophe. Next cake .COM and stocks with no property and no earnings, not worth anything were trading in the stratosphere. This is when I was trading options. JDSU was typical. It would undergo a stock split every 90 days with the stock eventually reaching 150 bux so a single share might split 8 times in a year and the price soared to 150 bux a share. Eventually the party was over the musical chairs were filled and JDSU did not have a chair. The stock went to $2 and the stock did a 8:1 reverse split. I made money trading JDSU till I lost money. I still don’t have a clue exactly what I owned in the stock from a value perspective, but what I cared to own was access to cash flow. JDSU LMNOP QRSTUV whatever, all I was doing was trading cash flow and momentum. It’s like sky diving. The acceleration is breath taking and only ends once the ground is hit. By then you better have risk management in place. If you don’t you will bounce. That is what sky divers say happens to people who “go in”, that is suddenly decelerate without deploying their risk management. I’ve seen bounces, they are not pretty. Pretty much everything gets crushed.
I didn’t manage my risk very well in 1999 and managed to loose 1M. I made it back and managed to loose that same 1M in 2008. I made it back as well. In 1999 I did have what I thought of as risk management. I didn’t know much about bonds but I did own some muni zero coupon strips that were paying 7.5%. I had GE. GE got to 57 bux in Aug 2000 AND NEVER RECOVERED! It’s taken GE 20 years to die but dead it is. I owned Fidelity Countrafund It was 6.5 bux in 1999, went to 7.8 bux in 2007 and is about 14 bux today. I sold Contrafund around 2008 but had I held it over 20 years I basically would have doubled my money in that period. That’s a 3.5% rate of return over 20 years dividends reinvested. I did own some Fidelity tech mutual funds in 1999 that actually went out of business. I thought I owned diversity. The interesting thing about 2000 was everybody and their brother was a trader. My contractor who had dropped out of high school had 1M in the market and was filling me in on his book out on my driveway back then. Didn’t turn out so well for either of us, but my risk management was better than his.
In 2005 or so I was having coffee after Church talking to a welder. He owned 5 acres of scrub land out in the sticks near where I live. He was telling me how the 5 acres across the street from him had sold for 90K an acre. I said 90K an ACRE? SELLLLLL I said!! I had priced 10 acres a few years earlier for 4.5K an acre in a much better location and I couldn’t get myself to pull the trigger so no way was 90K an acre reasonable by any stretch. He just looked at me and said: what if it goes to 120? I live in rural FL out where I live there are no lights to pollute the night time sky. My neighbor to the east is the Atlantic ocean so when I get up to pee the eastern sky is magnificent. That same 5 acre plot today would fetch 9.5K/acre. If I was in the market I’d wait a year and could probably get it for7K.
This time feels very much to me like 1999 and 2005. High school dropout contractors and welders are all tycoons. Not to diss them at all. They are my patients neighbors and friends. They go to my Church and shop at my Walgreens. So the question is what does price actually measure these days?
I looked at the market today and saw this:
I’ve read that there are several million new brokerage accounts that have been opened since the crash in March. I’ve read that many peeps on unemployment ate making more on unemployment than they made working. I read that peeps are getting an extra $600/wk. How is it the NAS closes up .29% while the Dow closes down 1.09%? That’s a 1.4% spread! The answer is this is 1999. This is my contractor sitting at home trading QQQ waiting for the job to come back. This is JDSU. This is 90K/acre. This is where the 4T in stimulus went. This is living in a video game called “Stock Market”. This is every fund manager having to go “all in” or else be left behind and loose his job. The laws of gravity have not been repealed. I just reviewed a side deck of world wide demand and world wide production and world wide shipping (supply chain) on a region by region basis. This deck is what life is like outside the video game.
Here is an example Singapore. Singapore is a city state Island in south Malaysia. It is a wealthy country and has 6M people and had 25 Covid deaths with 38K infections. Here are a couple charts of what’s going on in Singapore
Recreation is down 65% and work is down 60%. This is common across the world. Nothing anywhere is gangbusters. The title of the report is “Slowly Recovering”. Is Singapore consistent with a NAS of 10K? What happens to QQQ when the stimulus rolls off in July and NAS has a down day? What does price measure? Rate of change or value?