We are Not Going to Party Like it's 1999!

When I was in college Prince used to sing "we are going to party like it´s 1999". Surprisingly that´s what the markets are singing now. 1999 was almost a decade ago but the value of stocks now is the value of stocks in 1999. If you had kept a 1999 newspaper stock listings, it would do now. The world however has grown around 40% since then. World GDP that is. So what are the markets saying? That we are going to shrink to the levels of 1999? I don´t think so.

I think we will have a bad recession, negative growth, a rise in unemployment. But I don´t think we are going back to 1999. That´s why I started buying stocks last month. I was all cash. Now I have around 20% of my portfolio in stocks and I am down 24% in that 20%. I started with 5% of my portfolio in stocks and I kept buying as stocks went down. Initially I experimented with buying banks and I did poorly. Banks may eventually turn around but buying them is for government watchers. They are at the epicenter of this hurricane and all subject to the whim of some ex GS employees. Why did Lehman go under and Bear Stearns was helped? I think what Paulson is doing has no logic and I was wrong in thinking that I could understand him or the markets as they relate to government intervention. Instead last week I sold banks in spite of the bailout and I bought utilities, pharmaceutical companies like Merck or Lilly, and big tech stocks like Dell, Microsoft, Apple, Nokia. And if this week they go down I will buy more and go more into stocks. My rule now is that for every 10% stocks go down I put another 10% of my portfolio away from cash in top stocks. My objective is to keep those stocks for a long time. Let´s say I think of my 4 children when I think of those stocks. I think of the buying opportunity of their lifetime. Looking back a month ago when I started buying some stocks, of course I wish that I had resisted hunting for bargains and waited. I would be 24% better off today. Still I am sure that we are now or in the next months in the buying opportunity of their generation and will keep buying. And hopefully we will party, buying in 2008 at prices of 1999.

Added later: I just found an article in the New York Times that makes the same point I make with more examples.

Comments

[SteveMDFP]

We've been seeing a deflationary death spiral over the past couple of months. However, what took the government years to figure out in 1929 has been recognized in days. Massive monetary stimulus is being supplied.

With the TED-spread still near record highs, I think the money supply is still contracting, and we have more fire sales of stocks to go through. Still, I think the author is here savvy. More at:

http://stevemdfp.blogspot.com/

[Idytme]

Um, sorry the link for the 1929 crash is here: http://www.gold-eagle.com/editorials_01/seymour062001.html

[Idytme]

According to a chart on, I think the NYT, the only time the market was as oversold as it was when it hit about 14,000 was in 1929. And this meltdown can only be comparable to 1929 since we are talking about the same types of fundamentals (financials). And although most people only talk about the crash in 1929 it took another three years to hit bottom. Here is a chart: http://www.huffingtonpost.com/martin-varsavsky/we-are-not-going-to-party_b_133998.html
When you are investing now, you are not investing on any fundamentals at all. First, you have hedge funds dumping stocks - either for redemptions or to cover derivative bets. So sectors that were safe are no longer safe. Secondly, we are entering into a recession so there is no idea about what P/E ratios will be by the end of next quarter. Third, you do not know what all these pay-outs by our government is going to do to the strength of the dollar and if the dollar gets weak there is a chance that money will be going, for example, from European investors into European stocks so they don't take the double risk of currency.
(if a stock goes up 10% but the dollar declines 10% they have made nothing)
The best time to have invested in the depression was 1933 - do you think it is 1933 yet?

[Martin Varsavsky - Huffpost Blogger]

I am a European based tech entrepreneur based in Europe. My portfolio is made from money I made on three exits on companies like Ya.com which I founded invested 38 million euros and sold to Deustche Telekom for 550 million euros. This summer I switched my portfolio to dollars and when I measure my returns in euros the money I lost in the market is half made up by the strength of the dollar.

[ErnestineBass]

Just curious...if American petrol consumption were to drop by as much as 10%, and OPEC suddenly decided it prudent to switch the oil bourse to Euros, how would that affect your investment strategy?

[KillTheMessenger]

In other words, you sold overpriced tech crap to naive buyers who were in a buying frenzy and had more money than brains? No offense, but that's how I remember those days. We engineers were laughing all day long how much money business people were willing to pay for trivial stuff that they didn't understand.