Three Things I Think I Think – The Bubble Cometh?

Here are some things I think I am thinking about:

1. The Bubble Cometh? My general theory on this era has been simple – we had a big consumer credit crash which left corporations as the strong hands in the economy leading this recovery to look a lot more like the corporate boom of the 90’s than anything we’ve seen in the last 50 years. Yes, I know – the past rhymes and doesn’t repeat, but there are a lot of similarities between now and the late 90’s. The main ones being a big tech boom, the 1998/2015 emerging market & currency crash, crazy high valuations and a boom in corporate leverage.  In the last few years I’ve outlined the many similarities including the “1998 Playbook” and the “Cost of Getting Scared out of Stocks in 1998”.   Emerging market stocks are up 40% since then and the global stock market is up 25%. It’s all played out eerily similar so far.

Of course, the trickiest part about 1998/9 was not staying in stocks for the boom. It was avoiding the bust. So while selling stocks in 1998 looked stupid for 2-3 years it ended up looking very smart in the long run. And that brings us to today. My working theory on busts has always been that they are preceded by booms. Stability creates instability. That whole Hyman Minsky thing. And Trump has become the perfect catalyst for the irrational boom. When Trump won I outlined why stocks would likely price-in market friendly expectations. But I also said that Trump is likely to lead to a bubble in stocks as expectations run ahead of reality.

Where does that leave us? I still think the thing that ends this stock market boom is likely to be the boom itself. Obviously, I am being a bit short-termist here. That goes against most of what I preach in asset allocation, but it’s still fun to theorize about all of this. And my 1990’s working theory still appears very much intact.

2. Listen To This Podcast. I have not listened to Barry’s interview with Ed Thorp yet, but I plan on slogging my fat ass outside at some point this weekend and punishing my knee joints while I fill my brain with deliciousness from Barry and Ed. I recommend you partake in the listening part, but not necessarily the horrific running part.  It is certain to be a good interview.

3. The Official Uniform of High Fee Asset Managers. I was watching CNBC this week when this Irish money manager came on talking about how great his hedge fund is.¹ He was asked if his fees are fair and he said they aren’t high enough. Then I looked closely at his suit and I was stunned by his pinstripes. I thought to myself “wow, that’s the official uniform of all high fee asset managers”.

I am kidding of course. The picture is Irish MMA star Conor McGregor who is fighting Floyd Mayweather next month. I used to be a big fan of boxing, but as a former (bad) football player I’ve become a bit obsessed with the problem of head trauma in professional sports. The idea of bashing our brains in for short-term gain strikes me as inhumane and illogical. Anyhow, I’ve mostly lost interest in watching grown adults beat each other’s brains in, but I do love watching Floyd fight. There’s a real artistry in the way he fights and while most find it boring (because he doesn’t beat people’s brains in) I find it uniquely skillful. It’s a strange match-up and Floyd is a huge favorite, but there are so many interesting angles to this fight (from the different fight styles, size difference, Floyd’s money problems, etc) that I might just end up watching it.

Anyhow, I hope you all have a great weekend. Game of Thrones is back if you’re into that thing. Which you should be. Because it’s amazing.

¹ –  This is a lie. I did not actually watch a single minute of CNBC this week.