This is why at the end of the great bubbles it seems as if the confidence termites attack the most speculative and vulnerable first and work their way up, sometimes quite slowly, to the blue chips. A plausible reason for this effect would be that experienced professionals who know that the market is dangerously overpriced yet feel for commercial reasons they must keep dancing prefer at least to dance off the cliff with safer stocks. This occurred in 1929, in 2000, and it is occurring now. The final feature of the great superbubbles has been a sustained narrowing of the market and unique underperformance of speculative stocks, many of which fall as the blue chip market rises. In this cycle, the acceleration occurred in 2020 and ended in February 2021, during which time the NASDAQ rose 58% measured from the end of 2019 (and an astonishing 105% from the Covid-19 low!).
WILD RUMPUS FULL
The penultimate feature of these superbubbles was an acceleration in the rate of price advance to two or three times the average speed of the full bull market. Previous equity superbubbles had a series of distinct features that individually are rare and collectively are unique to these events. In each case, these shared characteristics have already occurred in this cycle. we are in the fourth superbubble of the last hundred years. All five of these superbubbles corrected all the way back to trend with much greater and longer pain than average. There were also superbubbles in housing in the U.S. But before they did, a handful went on to become superbubbles of 3-sigma or greater: in the U.S. Here’s an excerpt from the commentary:Īll 2-sigma equity bubbles in developed countries have broken back to trend.
In his latest commentary titled – Let The Wild Rumpus Begin*, Jeremy Grantham explains why we are currently in the fourth superbubble of the last hundred years.
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