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Bubble Behavior

Updated: Jul 20, 2023

We reached a point yesterday where MSFT, AAPL and AMZN were a full 15% of the S&P500. I’m not even sure the stock market can go down unless all three of those stocks do.

26% of the S&P 500 index is now made up of the ten biggest companies, which is really only the top nine companies because Google Class A and Class B shares are both in the top ten.

Paypal (PYPL) is more than five times bigger than Citigroup (C). Nikola (NKLA), an auto maker that has never produced a single car and doesn’t even have a manufacturing facility, is now worth two and half billion dollars more than Ford (F).

Over the last year, I saw a salesman leave a perfectly good job to become a private equity investor, only to get destroyed-- it took just six months for him to realize the gravity of what he’d done. I have seen aerospace industry experts buy Boeing (BA) at $400 a share and watch it fade 75% without ever selling so much as a single share. In just the last few weeks, we have seen several bankrupt companies’ stocks rally 500% in a matter of days, only to give it all back. Last week, a travel guide who himself recently went bankrupt running a tattoo shop in Las Vegas, who now lives in a tiny apartment in Mexico and who has been relegated to cooking with a camp stove, started making stock recommendations on his Facebook page. Better yet, he started making recommendations to buy options.

Last I saw, which was yesterday, he was down 30% for the week. For the week.

The sheer hubris of people is fascinating, and for a market historian like myself, it’s just plain interesting to see this bubble behavior in a recession, which is exactly what’s going on.

Zero commissions for trading, an unprecedented pandemic where people have been stuck at home with fresh money just sent to them by the government, no sports, and guys like Dave Portnoy leading a whole cadre of sports gamblers into stock trading all led to a perfect set-up for the recent trading rally. It reminds me very much of 2000 but quite different from 2008, which is interesting, because a lot of the young retail day traders who have driven the recent rally don’t even remember the time when Amazon only sold books and Blackberries were how everybody got their stock quotes. Robinhood was still more than a decade away. But I remember taking a taxi ride in Chicago in August of 2000 when the Ethiopian cabbie told me in his thick accent that all I had to do was buy Yahoo! and Sun Micro to get super rich, and all I could think about was Joe Kennedy getting his shoes shined.

There are good companies with bad stocks, and there are bad companies that are good stocks. I don’t think pajama traders on Robinhood with $2,000 accounts that they opened with their unemployment checks know the difference, but more importantly, I don’t think they care. In fact, I think they’d trade any space where there’s action-- when stock prices normalize, they’ll move on to trading options on the Vix, or orange juice futures, or whatever. I expect most of them will find new and exciting ways to lose money.

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