Last year when China was causing flash crashes and constant market fear I said that this environment looked a heckuvalot like 1998. And I said that there would be a huge cost to selling stocks into that environment. My basic thinking was:
- China is a risk, but it won’t derail the US economy.
- From a macro perspective, many of the scares in 2015 looked eerily similar to 1998.
- After a brief decline in stocks in 1998 the markets realized that these global macro fears were all overdone and stocks boomed into what we now know was the Nasdaq bubble.
Now, there are some obvious differences between 1998 and 2008:
- The current tech boom is much more benign.
- The emerging market scare is less concerning since there are no currency pegs involved.
That said, I would reiterate what I said the other day about the potential for a big bubble in stocks here. While a lot of people are quick to compare this environment and every little hiccup to 2008, I think this environment looks more like 1998 than 2008. The degree of skepticism and skittishness in this market is palpable. But bubbles don’t form overnight. They develop slowly at first and then all at once. I am not sure that’s where we’re headed here, but I still think this environment looks a lot more like 1998 than 2008.
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