It would certainly take a special confluence of factors for us to be staring down the barrel of a an unprecedented crash in tech stocks without noticing it’s coming. But I’m starting to entertain the idea that that is exactly where we are, we may not know how much pain we are truly in for - and we might not fathom how quickly it could come on and surprise us. While I've already talked about the folly of money printing and how it could destroy the U.S., its residual effects in markets are also worth paying close attention to.
For a little while now my friend on Twitter @rosemontseneca has been quietly pontificating that we are living 1999 all over again, we just don't notice it yet. I'm starting to seriously agree with him and I have been thinking to myself over the past week: “Why aren’t other people making this comparison yet? Stocks are extremely overvalued. What’s ‘different this time’?"
Indeed, I believe the next crash is going to come as a breakneck-style surprise.
But analogies aside, the point is still the same: the next big market plunge could be any day now, and will likely be led by tech. Let me explain my reasoning.
A couple of things need to happen in order for a major crash to be around the corner without us knowing it, in my opinion. The first thing that needs to happen is that the bubble needs to be more dangerous than prior crashes - nobody would panic at the nominal size of the 1999 bubble anymore and it would hardly be enough to scare today’s investors. They’d probably look at it as a “dip” to buy. The second thing that needs to happen is we need to be flying totally blind and distracted to the market’s insane valuation somehow. This is where the “surprise” factor comes in. The third thing that needs to happen is a catalyst that will shock and wake everybody up all at once.
So let’s talk about why this bubble could be more dangerous than previous ones. The NASDAQ is literally the 1999 tech bubble on steroids. It’s not going to come as any surprise to my readers that I want to point out that a significant amount of call buying that was done purposely back in 2020 is what sets us apart from 1999’s market.
Inflation is starting to get to a point where it is becoming a major political issue and the rest of the country is starting to notice how quickly prices are rising. This is doing things like pulling demand forward, as consumers anticipate continued price hikes and supply chain issues.
These types of unnatural behaviors by the consumer, coupled with Wall Street realizing that a lack of action from the Fed could be catastrophic, could wind up being a perfect storm that catalyzes a deleveraging from growth stocks. If rates do begin to rise - even slightly - it will be a tiny incentive for a few investors to get out of the market and seek yield elsewhere. Even the slightest of rate moves and the slightest of tech market selling could catalyze massive aftershocks in equity markets - especially if it catches people bit by surprise and the aforementioned bid under tech stocks rests on the air pocket that I think it does.
The point of the matter is we could be closer to a tech stock crash than we think.
The point of the matter is we could be closer to a tech stock crash than we think.
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