Here Comes the Climax

“A bull market is like sex. It feels best just before it ends.”
– Barton Biggs

I knew this girl in college who really liked to be bitten right before she, you know… took a final. This past week’s $19 billion Facebook binge felt like the beginning of a climaxing of sorts – the type of deal that usually comes to punctuate the end of a great bull market (think AOL-Time Warner, the LBO of Equity Office Properties) or at least speeds up the gallop into the end. It’s either the sound of the curtain dropping or it’s the gun fired just as the dogs round the last lap on the racetrack.

Either way, it’s ominous as hell to those of us with a memory. Facebook at 70, Tesla at 200, Netflix at 450, Google at 1200, it’s all of a piece.

Jeff Mortimer of BNY Mellon Wealth Management tells Bloomberg News about some similar activity he’s seeing – namely the fact that stocks that lose money are the new leadership group on The Street:

Two things explain why the biggest gains in the U.S. stock market this year are coming from companies without profits, according to Jeff Mortimer of BNY Mellon Wealth Management: Greed, and fear of missing out…

Unprofitable companies such as Zynga Inc. and FireEye Inc. are leading gains in the Russell 1000 Index. The Nasdaq Biotechnology Index is up 25 percent in the past 10 weeks, the most since February 2012, data compiled by Bloomberg show. Less than a third of its 122 companies earned any money in the last 12 months. Marijuana shares, which trade on venues with less stringent reporting requirements, are among the most active.

“In this backdrop of human emotions, which begins to take over, it’s one of greed, it’s one of willing to pay for something that will happen in the future and being afraid that one might be left behind.”

I’ve seen this kind of thing before.

I was around in ’99 when they started taking companies public for billions of dollars just because they had the word “Linux” in their names. I saw 3Com take 5% of its Palm subsidiary public in 2000 and watched as that 5% little stub became worth more than all of 3Com – the parent company that owned the other 95%, plus its own business.

We’re not quite there yet, but we’re well on our way. Anyone who tells you otherwise or pretends that this is normative, rational behavior is a dangerous idiot with no sense of market history.


Greed Turning Losers to Leaders in Russell 1000 Index (Bloomberg)

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