I saw reference to “Party Like It’s 1999” on CNBC on the morning of December 18, 2020.  They weren’t talking about a Prince song. They were talking about the boom in stocks.

I don’t know, seeing this caption, if there is irony there or not.  Was the implication just that stocks were booming?  Or was there an implication of a massive bubble ready to collapse?

I remember the tech boom of 1999 quite well.  All you had to do during that time was put a dot com after your company name and try to get it to go public.  Many of these companies boomed, even without having ever made a profit. Some of them barely had any revenue.

The tech boom in stocks came to an end in 2000.  Stocks in the Nasdaq plummeted.

It should be noted that the boom in technology never came to an end.  The ridiculous stock prices came to an end at that time. The profitable companies (or future profitable companies) survived.

Amazon

Amazon was part of the tech boom of the late 1990s.  It had started out as an online bookstore and quickly grew into the everything store.  While the stock price had its time of falling, the company moved ahead and the stock price went forward with it.

By the way, I had owned Amazon stock back then.  I believe it was actually my worst investment decision ever, looking back. The bad decision was in selling. I don’t remember exactly when I sold, but it was sometime in the 2000s.  I saw an old statement and I figured out that if I hadn’t sold, it would now be worth somewhere in the low six figures.  This was off an investment of maybe one to two thousand dollars.

Even though the profit margins are extremely low for Amazon, the massive volume makes it a profitable company.  There is some justification to its sky-high stock price.  It is important to note though that Amazon has benefitted consumers more than anyone.  We can talk about the billions Jeff Bezos has made.  We can talk about the many people who have become millionaires selling products on Amazon.  But there are hundreds of millions, maybe billions, who have massively benefitted from Amazon.

Consumers don’t always get cheaper prices, although that is one benefit.  It is a measuring stick for comparing prices and delivering competition.  Most of all, it has become a place of convenience, especially with the fast delivery.

Anyway, Amazon is the outlier.  I have no idea where its stock price goes from here.  But it has been a big beneficiary from the events of 2020, especially with many small businesses having been forced to close.

Nasdaq Up 42%

The other headline on CNBC that morning was that the Nasdaq is up 42% this year.  This would be ridiculous in any year.  It is especially ridiculous given what has happened in 2020.

The main thing that seems to matter in 2020 is the Federal Reserve’s balance sheet (which has skyrocketed).  The Nasdaq stocks have boomed more than other stocks because the lockdowns don’t impact tech stocks as much.  If anything, like the Amazon example, it has seemed to benefit some companies.

But we are at a point where nothing makes sense.  We have seen massive unemployment in 2020.  We have seen record deficits.  We have seen hundreds of thousands of small businesses shut down. And we were already at near record highs in stocks at the beginning of this in early March.

What the market is telling me is that the events of 2020 are good for stocks.  I don’t see how this can be true in the long term. Stocks investors are saying that the Fed’s massive monetary inflation has no ill effects.  It is all positive for corporate profitability.

Some people are spending more on Netflix and Amazon.  They are at home more and want entertainment.  Some people have more disposable income because they aren’t commuting to work and they aren’t going to the nail salon.  But on the other hand, you have millions of people who are now unemployed who previously weren’t.  You have many millions of more who have seen a reduction in pay or a reduction in hours.

I find it hard to believe that the events of 2020 are good for corporate profitability overall. Of course, this is assuming that profitability even matters, which it doesn’t seem to matter much these days.

However, there tends to be a reversion to the mean.  Profitability doesn’t seem to matter now, but if companies ultimately become unprofitable, this eventually gets reflected in the stock price. There is a reason we call them bubbles.  They aren’t supposed to make sense.

I wrote a post in January 2020 wondering when the Dow would hit 30,000.  I wondered the same about the Nasdaq hitting 10,000.  Once stocks started to fall in March, I didn’t think it would happen this year.  I was completely wrong.  It is incredible that the Dow has broken the 30,000 mark.

With the Nasdaq, not only did it break the 10,000 barrier, but it is now about 27% above that barrier.  I thought it was a bubble before it hit 10,000.  What we have now is a mega bubble.  There is a lot more to the Nasdaq than just Amazon.

When this thing blows, it is going to be devastating to a lot of people.  It could happen quickly too.  It takes a lot more time to inflate a balloon than it does to watch it pop.

The Fed will likely respond to such a crash with even more money created out of thin air. Believe it or not, there are limits here too.  We may get to see those limits.

Many of the lockdowns have not ended in the United States.  Some places are locking down harder.  This can’t be good for business overall.  We have barely begun to see the economic devastation.  It is hard to imagine that major corporations will not be caught up in this devastation. Stock prices can’t go up forever. At some point, we are going to see the correction of a lifetime.