“
‘They know that overhauling the festivities – that is, continuing to speculate in companies that have gigantic values relative to the cash they are likely to generate in the future – will eventually bring pumpkins and mice. However, they hate to miss a single minute of what one Helluva party is. Therefore, the crying participants all plan away seconds before midnight. However, there is a problem: They dance in a room where the bells have no hands. ‘
”
That’s a quote from Warren Buffett’s letter to shareholders back in 2000, but it surfaced on Reddit on Sunday, with investors comparing it to the current stock environment.
At the time, the Berkshire Hathaway was BRK.B,
chairman compared those submitted during the dot-com bubble frenzy with Cinderella at the ball.
“The line that separates investment and speculation, which is never clear and unambiguous, is still blurred as most market partners have recently enjoyed triumphs,” he wrote. “Nothing seduces rationality like large doses without effort.”
The current investor knows a thing or two about difficult money, because the difference between the height of the market and the reality of the ruined economy has never been more pronounced, thanks in large part to the promise of the Federal Reserve to pump cash into the system.
Buffett’s fairy tale is not the only thing that goes back to those hectic tech days. The “Buffett Indicator”, which takes the Wilshire 5000 index and divides it by its annual US GDP, recently reached its highest level since just before the 2000 bubble burst.
Here’s what that chart looks like:
‘What does that mean for us? It means you stay long stocks in longer dated accounts, and make sure you have assets (like a house, etc.), “Sevens Report Researcher founder Tom Essay recently explained to Yahoo Finance.” But it also means that this cycle of asset inflation better not stop, because … if asset inflation stops, it’s a long, long road to fundamental support. ”
Meanwhile, the ‘yellow participants’ continue to dance, with stocks seeking to extend Friday’s gains. At last check, futures are on the Dow Jones Industrial Average YM00,
, Nasdaq Composite NQ00,
and S&P 500 ES00,
all pointed to a positive start to the week.
And if you’re looking for signs of bubble behavior among investors, look no further than Reddit’s jayjay16022, who offered this take in the comments section below Buffett’s quote:
‘I can not help but feel that we are living in times when the old rules are no longer applicable. It’s not just Tesla TSLA,
. Apple AAPL,
is worth almost ten times its turnover. The same goes for Alphabet AAPL,
and many other NASDAQ COMP,
companies, ”he wrote. Is this really just another giant bubble, or is this the New Age driven by low interest rates and massive bond purchases by the Fed? Time will tell. “
Is it really different this time?
.
