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Update Market Nursery Rhymes

 

 

 

History never repeats exactly but it does rhyme. This means never the same thing happens twice but similar things often do.

I look back at how many articles, shows and newscasts I have done on asset bubbles and I do see a lot of rhyming poetry pieces.

So once again, I delve into another economic children’s rhyme dealing with bubbles, manias and amateur stock buyers.

And yes, the three do go together. And no matter how many times we see stock charts or the price of some other asset go straight up, that “straight up” price action is caused by everybody and their mother buying something just because it goes up. And the higher and faster it goes up, the more the amateurs pile in thinking they have found the holy grail.

Don’t get me wrong. It’s not just mothers, fathers, daughters and sons that are piling in, but seasoned (I use that word loosely) advisors, investors, news anchors and market cheerleaders as well.

And no matter how often I see it, and warn people about it, and write about it, and broadcast over the air about it, the rising prices of whatever it is that is rising, keep rising.

The price charts of these things, whether it be stocks, real estate, tulip bulbs, ostrich farms, railroads, or a thousand other things that have bubbled up and then blown up, the pattern is always the same. Or at least it rhymes a hell of a lot.

The latest and greatest include Artificial Intelligence (AI) stocks. In my August 25th article entitled “Another Bubble”, I touched on the AI stocks and their bubble like appearance. I covered the AI mania also in two other articles and a radio show or two.

When we see price charts that go straight up, as in almost vertical, I hearken back to Economics 101 Class where we learned vertical lines are bad. Nature always seeks to return to the “mean”, which is a fancy way to say seeks out the averages more often than anything else. That’s what a mean, means. In other words, yeah it gets super-hot on some days, and super cold on some days, but the average temperature is somewhere in between. Not rocket science.

It’s the same with stock prices. Some go straight up, and some go straight down, but they all have a mean. Or better said, straight lines in either direction don’t stay straight forever. And what goes up, goes where now class?

Correct.

That doesn’t mean a stock will return to its average range or price. What it does mean is that stocks that go straight up for an extended period usually reflect that buyers may just be buying because the price is going up and going up fast. That can lead to investors (if you can call them that), just buying regardless of what the company under that stock does, what its earnings are or what product it sells.

Think PETS.COM or DOT.COM in general.

The DOT.COM stock mania was a bubble, characterized by the near straight up price chart of many of DOT.COM era stocks.

And yes, it happened with Tulip Bulbs long ago in the Netherlands, Texas real estate in the oil boom period and like I said, a thousand other areas over eons of time and in countries and regions far and wide.

Fast forward to the AI stocks of today, and once again the proverbial straight up price chart is the movie of the day.

The last week brought about significant corrections in these stocks as did a few months back and it seems the party may be coming to an end.

And as usual, there are many hanger-oners clasping to the familiar story is that its temporary and it will come back better and higher than ever.

Can’t really say what will happen as such is the way of markets. But those vertical lines in the prices of some of these stocks look hauntingly familiar.

As will the cliffs they fall off of if indeed the party is about to end and the nightmare is about to begin.

Not saying it will happen, but I have read this book before.

  “Watching the markets so you don’t have to”    

(end)    

(As mentioned please use the below disclaimer exactly) THANKS   (Regulations)    

This article expresses the opinion of Marc Cuniberti and is not meant as investment advice, or a recommendation to buy or sell any securities, nor represents the opinion of any bank, investment firm or RIA, nor this media outlet, its staff, members or underwriters. Mr. Cuniberti holds a B.A. in Economics with honors, 1979, and California Insurance License #0L34249 His insurance agency is BAP INC. insurance services.  Email: news@moneymanagementradio.com

 


 

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