Irrational Non-Exuberance

The endless chatter of bubbles and crashes continues unabated. Eventually, all bull markets come to an end, and this one must eventually as well. But as I sit down to write this, the Standard & Poor’s 500 Index yesterday hit yet another all-time high. U.S. markets continue to have good internals, strong breadth and broad participation.

Yet each new high generates another call for an imminent top. On Sunday, the New York Times ran a column headlined, “In Some Ways, It’s Looking Like 1999 in the Stock Market.” In it, the claim was made, “It sure looks like a bubble.”

Some of you may not have been around during the 1990s bull market. In its final year — 1999 — Wall Street was a three-ring circus of insanity. The world today is nothing like it was then. The streets weren’t paved with gold, then trading at a pitiful $250 an ounce, but rather cocaine and $2,000 a night escorts. No one obsessed about the top 1 percent, because the top 50 percent saw so much green coming its way. Profits, salary and bonuses flowed madly from Wall Street to much of the country. Bonuses migrated from traders to Ferrari dealers to the Hamptons. Imagine so much cash sloshing through the system that even the now-shrinking middle class enjoyed rising wages and improving standards of living.

The sheer scope and unadulterated madness, the blossoming fireworks of greed at the tail end of the comet that was the 1982-2000 bull market was a wonder to behold. Are stocks the national pastime today? They were in 1999. You could walk into any bar, restaurant or gym and there was BubbleVisionTV (thank you, Bill Fleckenstein!) playing on the big screen like it was ESPN during March Madness.

Do you think stock-market sentiment is excessive today? You should speak to the American people: According to a Gallup poll in the first quarter, half of all Americans think putting money into the stock market today is a bad idea. Half!

In ‘99, a whopping 67 percent thought putting money into the stock market was a great idea. Risk aversion was for cowards and losers, and only 28 percent thought equities were a bad idea. To put that into context, in 1997, about 33 percent of Americans thought stocks were a bad idea.

Fast-forward to today — more Americans think putting money into the stock market is a bad idea (50 percent) than think it’s a good idea (46 percent). In light of the performance of the market over the last five years, I call this Irrational Non-Exuberance.

When we think of important market tops, we think of widespread euphoria and absurd valuations, while even the dumbest ideas having endless venture capital money thrown at them.

There is little of that brand of euphoria today for the market as the above survey makes clear. Valuations are only mildly elevated by historical standards. A profitable company, King Digital Entertainment Plc — maker of hugely profitable Candy Crush video game — just had a disappointing initial public offering. It was the latest IPO to come up short, even though Candy Crush makes a bundle and will soon hit $1 billion in revenue.

That’s the sort of metric the Pets.com sock puppet from 1999 could only dream about.