Partying in 2021 Like It’s 1999

“History doesn’t repeat itself, but it often rhymes” – Mark Twain

This quote is indicative of the times we are now living when compared to the year 1999. At that time, the Internet was a buzz word and any company that had a “.com” after its name was perceived as a sure hit. Money-making had never been easier. Forget the fact that the company was never in a million years going to be profitable, but simply the illusion of wealth was sufficient to spark the frenzy of the greater fool theory – that is, a fool and his money are bound to part ways. Day traders were certainly rampant in those days.  

Another characteristic of the year 1999 was the Web version of Covid-19 that was then known as Y2K. The myth then was that the world was coming to an end because some doofus geek had forgotten to program computers when invented to be able to recognize the year ‘2000’. The fear took a life of its own. Yours truly was not the exception: I cancelled my overseas travel at the turn of the century simply because I did not want to be at the wrong place and at the wrong time. Ultimately, you can imagine what happened when the clock struck midnight on December 31, 1999. That’s right. Nothing happened. The world did not end.     

But earlier in 1999, the FRB was not equally exempt from the “world is ending” fear, and so they began to steadily increase its monetary base (which is another fancy way to say that they flooded the markets with extra liquidity) by about 16% from March to December. You would be hard-pressed to find a similar increase in that short time period prior to 1999. That said, the FRB’s actions fed into the market frenzy of day traders and risk takers alike. When the FRB drained liquidity from the market starting in January 2000 and continuing in February 2000, the end of the market frenzy was in sight. 

The hardest high market was the NASDAQ (see graph below), but a similar dynamic was evident across equities. 

Now in a similar fashion we are seeing WallStreeBets day traders, “.com” money (such as bitcoin), and an eye-popping equity market fueled by FRB liquidity. Indeed, as a philosopher once wrote: there is nothing new under the sun. When the frenzy will end, no one knows; but how it will end, simply look at history.