“Déjà vu 2000,” began a report this morning from Bank of America, whose analysts went on to soberly explain that with individual investors piling into stocks and sentiment at “euphoric” levels, it’s very nearly—but not quite!—time to sell.
Fintech Zoom’s Henry Blodget chimed in too.
“Lots of similarities to the peak of the last great stock market bubble,” he tweeted this morning, linking to the (BofA) report.
This was interesting because Blodget knows a bubble when he sees one.
In 2000 he was an analyst at Merrill Lynch, and his bullish stock picks symbolized the era’s tech-stock mania. It turned out his enthusiasm was driven by the fees Merrill pocketed from taking companies public, making markets in their shares and the other stuff investment banks do.
One day a client emailed asking about a forgotten company that Blodget had said would be “a survivor.”
“What’s so interesting about GoTo except banking fees?” the client wrote.
“Nothin’,” Blodget replied.
Blodget and another Wall Street analyst, Citigroup’s Jack Grubman, got into trouble with then-Attorney General Eliot Spitzer and industry regulators. Blodget was banned from the securities industry for life. He turned to publishing.
“The market’s expectations are ahead of reality,” he said in another tweet today.
That sounds right, but history shows disconnects like this can last a long time.
The dot-com bubble lasted from October 1998 until March 2000. It began when Federal Reserve Chairman Alan Greenspan unexpectedly cut interest rates to rescue markets in free fall after Russia defaulted on its debt and hedge fund Long-Term Capital Management had to be bailed out by its lenders. The Fed started raising rates again in June 1999, but the tech bubble lasted until the next spring, shortly before the rate rose to 6.0%. There’s a lesson there somewhere.
Today’s Reddit-fueled bubble might create some new millionaires, but for sure it is making the already wealthy even more so. In January equity capital market revenues at the big Wall Street banks soared by 313%, to $11 billion, according to Evercore ISI’s figures. Total net revenue at Goldman Sachs jumped 78%.
Fed Chairman Jerome Powell has said repeatedly that interest rates will remain essentially zero for a long time, so this bubble may inflate further, and it must be respected while it does. And when the hangover strikes, as the wise men at Squeeze sang, we’ll all be reaching for the tap. But the water will be too loud.