This page has been archived and commenting is disabled.

Speculative Mania Is Now At May 2000 Bubble Levels

Tyler Durden's picture





 

As SentimenTrader points out, we are now approaching uncharted territory when it comes to speculative activity, and are back to 2000 bubble levels. "The  heavy concentration on bullish strategies, among all classes of traders, pushed the Options Speculation Index to another recent high, beyond anything we saw at the January peak or in recent weeks. The only comparison in the history that we have are the weeks around the peak in the spring of 2000.  It seems we've entered a whole new realm from anything we've seen over the past nine years, so who knows how much longer - or more extreme - this can go."

The last time we were here, the tech bubble was about to pop and result in 50%+ losses for the Nasdaq virtually overnight. This time around, this is not a tech-isolated bubble. This is a global bubble fueled by the endless money printing insanity of the Central Bankers. When it pops it will take down every asset class with it. But for the smart and dumb money, one must stay invested to have a job on January 1, 2011, not to mention bonus - look for the peaks from 2000 to be soon taken out as now everyone jumps on the same side of the boat.

Some more color from SentimenTrader:

Small traders, those trading 10 contracts or less, used 40% of their option volume to buy speculative call options last week.  That's the most since early May 2008 when the S&P 500 was 230 points higher than it was for most of last week.
 
Large traders spent 43% of their volume buying call options, the 2nd-most of any week since the year 2000 (March 10, 2000 was the highest, at 43.1% of total volume).

The second coming of the Greenspan bubble is now here, is undeniable, and has now reached unprecedented proportions. Next stop for the Dow will either be 36,000 as there is little to stop a ponzi from exploding at this point, or zero. The marginal need for new influx of capital to generate the same returns gets greater and greater, so in the next few months we will likely see either unprecedented meltup or crash. We are now past the point of a stable, smooth market as ROE self-cannibalization is now here.

 


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 04/12/2010 - 10:53 | Link to Comment Assetman
Assetman's picture

The second coming of the Greenspan bubble is now here, is undeniable, and has now reached unprecedented proportions. Next stop for the Dow will either be 36,000 as there is little to stop a ponzi from exploding at this point, or zero.

Perhaps that's a liitle extreme, but I get your point.

The thing to take from the Options Speculation Index is that with the introduction of various market indexed ETFs, there is the distinct possibility more speculative bets get piled on.

I sure wish it wasn't that way, but I can certainly see us get to Dow 13,000 if there isn't a significant global event that gets in the way. 

Make no mistake, though-- Bernanke is choosing NOT to see bubbles in risk assets OR in inflation in global commodities.  That to me is a very risky strategy.  This "experiment' could implode very quickly.

Mon, 04/12/2010 - 11:48 | Link to Comment Bananamerican
Bananamerican's picture

Spanky's got that royal jelly...we'll be fine

Mon, 04/12/2010 - 15:47 | Link to Comment market cynic
market cynic's picture

"Spanky's got that royal jelly...we'll be fine"

 

The royal jelly is so you won't scream when you bend over for your Quantitative Easing.

Mon, 04/12/2010 - 10:55 | Link to Comment john_connor
john_connor's picture

My vote is that we will possibly see a new high on some indeces, followed by the most spectacular crash in the history of man.  That includes tulip bulb, the 29-32 crash, 1987, Naz 2000 crash, and 2008.

It will make all those look like a picnic.

 

Mon, 04/12/2010 - 11:07 | Link to Comment Rogerwilco
Rogerwilco's picture

We have financial markets where the rules can be changed overnight to suit the goals of the policy makers. When the dislocation occurs and we see serious selling pressure, I think they will simply halt trading for an extended period. The rules will be changed, appropriate bailouts will be applied, and trading will resume with some kind of transaction filter to limit access by the "troublemakers". We have already seen a limited version of this when they hosed shorts on the "banks" to prop that sector.

Mon, 04/12/2010 - 11:23 | Link to Comment john_connor
john_connor's picture

That is the whole thing; there will be no more capacity for bailouts and governments and central banks will have failed.

 

Mon, 04/12/2010 - 11:25 | Link to Comment Assetman
Assetman's picture

Well... except that the interests the Fed has been protecting all this time will be on the short side of the trade.

The Fed, like last time, will try to control the selling in its protected finanical institiutions by putting in trading curbs or halting trading activity in a select list of names.

They will care less about the SPY.

Mon, 04/12/2010 - 10:57 | Link to Comment sweet ebony diamond
sweet ebony diamond's picture

surely the genius fund managers deserve a big, big bonus. i am talking buying 4 baseball franchises type bonus.

Mon, 04/12/2010 - 11:01 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

"This time around, this is not a tech-isolated bubble. This is a global bubble fueled by the endless money printing insanity of the Central Bankers. When it pops it will take down every asset class with it. But for the smart and dumb money, one must stay invested to have a job on January 1, 2011, not to mention bonus - look for the peaks from 2000 to be soon taken out as now everyone jumps on the same side of the boat."

The bold line is the take-away line of this article. The roach infestation and bubble blowing gets larger and larger with each recovery. It's counting upon group think herd mentality to over ride all logic and ration thinking and drive the population towards the abyss.

The professional trader/investor/advisor must either follow the herd or be fired by those who desire to follow the herd. Madness begets further madness which drives additional buying frenzy, turning nearly everyone into mindless zombie's. The pull is irresistible to nearly everyone, including myself. While I understand it for what it is, I'm still influenced by it.

Mon, 04/12/2010 - 12:47 | Link to Comment carbonmutant
carbonmutant's picture

"The pull is irresistible to nearly everyone, including myself. While I understand it for what it is, I'm still influenced by it."

+100

Mon, 04/12/2010 - 11:07 | Link to Comment yabs
yabs's picture

well maybe this guy is right and we have ignored the fact
that in hypoerinflkation assets ARE the place to be
http://fofoa.blogspot.com/2010/02/greece-is-word.html

I think maybe The deflationists are wrong. Credit growth does not have to occur with hyperinflation it is basically a loss of confidence as well so i think its very possible that we can have a hyperinflationary/currency collpase and with that stocks will be better places to be than paper money. I'm beginning to change my mind. Lets face it they will not have the political will to allow the stock market to crash again. they WILL keep on pumping and printing to Zimbabwe and beyond

Mon, 04/12/2010 - 11:34 | Link to Comment A Man without Q...
A Man without Qualities's picture

This idea has some merits but omits the subordinated nature of equities. Either businesses simply run out of cash or the Fed raise rates far too late, but either way the companies can no longer service their debts and the creditors take possession, leaving shareholders with zilch.

Hyperinflation will come after stagflation in my view and companies will collapse under rising input prices and collapsing real revenues.  

 

Mon, 04/12/2010 - 11:45 | Link to Comment mikla
mikla's picture

+1

Shareholders have a share of all future profits.  There will be no profits, because the companies won't be able to service debt.  Creditors will liquidate (and creditors will be screwed too.)

Everyone loses.

I understand you don't want to be in currency during hyperinflation .. but in reality, there is no where to hide.  Everything is screwed, except for the central planners arbitrarily picking a single asset to "relatively benefit" at the expense of other assets.

Unfortunately, you and I are not in those meetings.  It's a crap shoot.  (Bondholders got screwed for GM, and unsecured creditors got free, undeserved cash.)

Mon, 04/12/2010 - 12:43 | Link to Comment tmosley
tmosley's picture

No-where to hide?

*strokes his gold and silver*

Mon, 04/12/2010 - 14:54 | Link to Comment trav7777
trav7777's picture

Deflationists don't understand that as credit continues to default, the remaining debt must be discounted in the face of the obvious.  The FRN is debt.

Mon, 04/12/2010 - 11:24 | Link to Comment economists_do_i...
economists_do_it_with_models's picture

With $85 oil, 20% [un-official] unemployment, the printing press burning up to finance trillions in debt, and HFT quants -- this is a unique case.

My dad said that the margin req. in 1929 was only like 10% -- so margin calls and wild speculation contributed greatly to that plunge.  1987 -- program trading -- those rules have been changed, correct?  Tech bubble -- wild speculation on companies with no earnings.  With the PPT in place and a lot of the rules changed, I don't see a huge plunge happening anytime soon.  Short of a major bank failing or 9/11 type event, nothing else could make that happen.  But Dow 36k?  0% chance.

That said, I'm short, and I get more & more bearish by the day...

Mon, 04/12/2010 - 11:28 | Link to Comment plocequ1
plocequ1's picture

Here's my analys of the market. Go long, buy stocks and shut the fuck up. Being a short is making me loose money. I can't let that happen. Gotta keep up my Porno website subscribtions. Being a degenerate is expensive

Mon, 04/12/2010 - 11:28 | Link to Comment Oso
Oso's picture

Bernanke is like Custer - has his head so far up his own arse and is so conviced of his own made-up realities that he has no idea a slaughter is not only possible, but nearly at 100% odds.

Mon, 04/12/2010 - 11:28 | Link to Comment Clampit
Clampit's picture

Seems to me the focus of speculation is different this time; 2000 was about the impact of new technologies while today is about the impact of the fed's PDs.

Mon, 04/12/2010 - 12:51 | Link to Comment tmosley
tmosley's picture

Jeez, no-one seems to have any faith in the additional efficiencies that Obama is going to introduce into the markets via government regulations.

/sarcasm

Mon, 04/12/2010 - 11:31 | Link to Comment AssFire
AssFire's picture

 

Measured using our favorite valuation technique, Professor Shiller's cyclically adjusted PE analysis, the S&P 500 has a PE of 22X. The long-term average (1880-2010) is about 16X. The current level is actually close to the big peaks of the past--with the exception of the gigantic one that peaked in 2000.

  • The long-term average for the cyclically adjusted PE is about 16X. 
  • Stocks have spent vast periods above the average and vast periods below it, usually in multi-decade cycles
  • We've just descended from the longest period of extreme overvaluation in history, suggesting (to us, anyway) that the next multi-decade cycle is likely to be below average
  • At today's level, 1200 on the S&P, stocks are trading at a 22X CAPE, about 30% above the long-term average
Mon, 04/12/2010 - 12:10 | Link to Comment Rainman
Rainman's picture

That 22X also contains a generous helping of mark-to-myth earnings puff. Without the puff, the S & P multiples get much closer to the pre-bust QQQ high.

Mon, 04/12/2010 - 11:33 | Link to Comment lbrecken
lbrecken's picture
this is very telling on whats driving the good news recently....http://www.dailymarkets.com/economy/2009/09/04/us-stimulus-spending-to-r... look at the decline starting in 2Q...further most of the stimulus in 1Q was those tax refunds as I spoke of which was viewed as free money by consumers and spend at retail which should not occur in 2Q.  Lastly recall that govt accelerated those tax refund payments versus last year.
Mon, 04/12/2010 - 11:34 | Link to Comment Truth
Truth's picture

Massive resistance coming around Dow 12k....

Mon, 04/12/2010 - 11:42 | Link to Comment Lord Peter Pipsqueak
Lord Peter Pipsqueak's picture

So I'll ask again,where does the target Dow 36,000 come from and why the certainty it will be achieved?

Mon, 04/12/2010 - 11:58 | Link to Comment reading
reading's picture

pip, 

it's a joke...or maybe better an exaggeration to make a point.  However, IF the market continued it's current trend unabated -- it would take about 295 days or so to get there.

Mon, 04/12/2010 - 11:59 | Link to Comment Cursive
Cursive's picture

Pip, do you understand rhetorical flourish?  Were you not around a decade ago when two asshats, in the midst of Greedscum's Y2K bubble, wrote "Dow 36,000"?   So, you see, TD's reference to Dow 36,000 is a smartass reminder of the madness of crowds.  The current equity market is a bubble, just like that NAS circa 2000, and it will pop accordingly.  In the meantime, why don't you pick up a copy of the book?

Mon, 04/12/2010 - 13:04 | Link to Comment gosh
gosh's picture

Back in march 2000 there was a book published "Dow 36,000" that said the dow would go to 36,000.  Right after publication the market tanked as we all know.

Mon, 04/12/2010 - 11:57 | Link to Comment AnonymousMonetarist
AnonymousMonetarist's picture

 

"For unto whomsoever much is given, of him shall be much required: and to whom men have committed much, of him they will ask the more.
-Luke 12:48

"To be sure, if noblesse oblige, royalty must do so still more".
- F.A. Kemble

'The price of greatness is responsibility.'
-Winston Churchill

'With great power, comes great responsibility'
-Spider Man's uncle

The fella was insufferable. 

A PHD who spent the majority of his time either tomcattin' or moaning about his latest pending grant application while sponging and/or co-opting funds from relatives. Always bemoaning his lot, he would in haughty fashion continually proclaim to those who might indulge him that he was too ADVANCED to take a job that might horror upon horrors, pay the rent for his family. 

The best I could tell, his only contribution to society was intermittent book reports on groundbreaking fare such as 'smoking is bad for you.'

What made it worse was that he was my sister-in-law's husband. 

So at family gatherings inevitably would get sucked into a conversation with him where your humble blogger would carefully parse out my conversation in exchange for his long-winded and often logically incoherent responses that would inevitably end in his metaphorically patting me on the head and acknowledging that I was kind of clever given that I 'only had a bachelor's degree.'

Sheesh....

He's long gone now, thank goodness, exposed for his imbroglios, but at least one smile-inducing memory remains.

At one family soirée as the assembled gathered for a group photo he took the reins to organize folks for the shot and as all watched struggled mightily to figure out how to operate the Kodak.

In a loud voice, I cracked, 'Looks like you're too ADVANCED for that camera eh?'

The unbridled howls from the clan almost mitigated the aggregated unbearableness of past interactions.

Thought of the poor sop as I caught the brief article on page 2 of the Weekend FT on the inaugural meeting of the Institute for New Economic Thinking.

Organized by Soros, it included five Nobel prizewinners, and its' landmark conclusion was that the financial and economic crisis had exposed fatal flaws in the subject of economics and that ideas were urgently needed to keep economics relevant.

Raheally??? Go on....

The conference participants could neither agree on the cause of the crisis nor the necessary remedies....

BWAHAHAHAHAHAHAHAHAHAHAHA!

News flash: the noblesse oblige have determined that unspecified mistakes were made.

Alfred Bernhard Nobel is convulsing in his tomb.

Our blessed intelligentsia are at a loss in attempting to provide a summation of our 'I Can't Believe It's not Capitalism' plan in response to the 'What just Happened' crisis? 

They just can't noodle the fact that we are Paying it Backwards, the next generation paying us to paper over the inevitable creative destruction that must occur and that will occur, which will inevitably lead to a DeadHead Economy as we navigate the black diamond demographic slope on the backside of Sugar Mountain? 

It escapes them that the cold hard fact of our age is that the bankrupt ideology of the rich that had greatly succeeded in drafting the inner monologue of regular folks so that they would vote against their self-interests is colliding head-on with a Mr. Market that is a bit pissed off that we've inflated it out of the business cycle for the last quarter century? (AM Rule #6)

They just can't fathom that after World War 2, our blessed leaders, impressed by German 'organizational' skills crafted a policy of manufacture of consent; over time these techniques moved to the economic realm in an attempt to manufacture content; and now the Federales risk the manufacture of contempt, for it is only a Great Depression if they say it is? (AM Rule #1)

They are oblivious to the calamity that Mr. Hand's strong dollar policy is in fact a chimera of currency debasement masquerading as America's wealth exporting machine that is regularly promulgated by our leaders as an exceptional example of America's resiliency?(AM Rule #5)

No epiphany about the bane articulated by 'Nancy Capitalists in a Sovereign Democracy that are Hell Bent to Seek Rent', no insight in reference to the scourge that 'although we walk through the Valley of Debt we fear No Easing', no commentary on the riff that 'Socialized Guts will lead to diminished glories'?

And not a peep on how a flat tax and an across the board 20% cut would balance our budget lest we be 'pushed' down the fiscal stairs?

Not a whisper about dipping the banks in the acid bath of price discovery so that the organic phoenix of creative destruction can lift all of us up to a brighter future thereby avoiding the likely trip down 'generation zero' gulch?

How about a hushed acknowledgement that removing the profit element from health care would, horror upon horrors, allow us to join the rest of the civilized world so we can bypass being eternally cajoled by the idiot box to 'ask our doctors'?

Methinks they are too ADVANCED for our dilemma.

But what do I know, I only have a bachelor's degree....

 

Mon, 04/12/2010 - 12:05 | Link to Comment sweet ebony diamond
sweet ebony diamond's picture

my name is larry summers.

i represent that statement.

p.s. great post

Mon, 04/12/2010 - 13:18 | Link to Comment swmnguy
swmnguy's picture

I managed to drop out of high school, and then a few years later, drop out of college.  Least formally-educated person in my family for several generations.  A quarter-century on, however, Two PhD's, a DVM and an MA are in BK.  I'm the most solvent, other than the li'l bro who is a BK attorney.  He's in the tall clover.  I'm no genius, nor captain of industry.  Just realized early I'd be better off living by my wits and thought, why wait to get started?

I wasn't ADVANCED enough to spend money I didn't have, working for somebody else.

Awesome post. 

Mon, 04/12/2010 - 16:08 | Link to Comment trav7777
trav7777's picture

Sorry...there's no brighter future.  Inadequate energy supply for the extra lights.

Mon, 04/12/2010 - 12:02 | Link to Comment EscapeKey
EscapeKey's picture

This time is different!

Mon, 04/12/2010 - 12:20 | Link to Comment yabs
yabs's picture

well I guess this is the last bubble as celente says

the bailout bubble an dwhen it pops the entire system goes down with it

Have to enjoy it I guess as its the last one

I sold out months ago as I did not see how it would continue

I still cannot see why anyone with half a brain would go inot this rigged casino of a market

Mon, 04/12/2010 - 12:24 | Link to Comment Pegasus Muse
Pegasus Muse's picture

"This is a global bubble fueled by the endless money printing insanity of the Central Bankers. When it pops it will take down every asset class with it."

I hope that PM's don't suffer too badly.  Sure, they may take a short-term hit like in the '08 liquidity crisis.  But over the long-term PM's will be the only thing people trust. 

Mon, 04/12/2010 - 16:10 | Link to Comment trav7777
trav7777's picture

Just remember:  the FRN is an asset class.

There is no such thing as "cash."  There is only debt.  The FRN is debt.  An electronic FRN has no special attributes not shared by a paper version of same.

Mon, 04/12/2010 - 12:26 | Link to Comment Leo Kolivakis
Leo Kolivakis's picture

Just wait, you ain't seen nothing yet!

Mon, 04/12/2010 - 12:35 | Link to Comment omi
omi's picture

Look, everyone is splitting orders and it's impossible to determine if 10lot trade that went off is a speculative trade of part of a larger trade.

Mon, 04/12/2010 - 12:37 | Link to Comment Caviar Emptor
Caviar Emptor's picture

I'm in the DOW 36,000 camp.

Why? It's pretty simple, actually. It derives from a core of extreme pessimism at the very top! The Chicago School Monetarists and Supply-Side/Trickle Downers are terrified that if the headline number in the stock market, the DOW, does not mark a new record high then investors the world over will conclude that the US has entered another Japan-style lost decade replete with zombie-bailed out-banks and core deflation. Terrified! So they won't remove the punch bowl. They learned all about shock and awe.

They also think that appearances trump substance (ie they're pessimistic on substance). They're very concerned that foreign and domestic capital will all too easily be lured off US shores as emerging market growth becomes all too seductive. And that might be the start of an irreversible slide. And another consideration is whither Wall Street and the FIRE sector if the market languishes? Back to the 70s? The horror!

It's all a giant poker game. Only most informed investors know that they're bluffing. We're crossing the line in Fed and fiscal policy from "pump priming" into replacing organic growth with sheer inflation. And that, in an essentially deflationary environment, will absolutely crush consumers and small business. That's the unforeseen, untoward side-effect of this grand experiment. 

Mon, 04/12/2010 - 14:03 | Link to Comment mchawe
mchawe's picture

 "Only most informed investors know". Read GS and JPM. They operate the PPT after all.

Nobody can work out what psychopaths and sociopaths are going to do next unless you are one of them and in the club.

To say,  "investors the world over will conclude that the US has entered another Japan-style lost decade replete with zombie-bailed out-banks and core deflation. Terrified! So they won't remove the punch bowl. They learned all about shock and awe." .........implies normal emotions. Their sole object is to fleece as many people as possible and enjoy watching them getting carried out on a stretcher !

They know in advance when the pin gets pulled.

I stay out and don't give a FK if the market goes up. I own gold and have no desire to get rich speculating.

Basically agree with most of what you say except that 36000. The pin gets pulled before then, or else we are in hyperinflation.

 

Mon, 04/12/2010 - 16:17 | Link to Comment trav7777
trav7777's picture

Why are you complaining?

"Organic growth"?  There is none to be had.  That is why yields are so low.  It's why debts requiring interest are being discounted before our very eyes, including creditmoney.

Everybody seems to think that gee if we just do this or that INSTEAD of what's being done and which obviously isn't working, that the "growth" will come back and we can resume grow, grow, growing forever!

We can't.  That's the problem.  It's why everybody is confounded by this.  Economics DID NOT CONSIDER the system state where growth could not continue, where headroom evaporated.

At least circuit designers understand clipping and dynamic range and headroom.  File this epic fail into another matter that economists do not get in their pseudoscience.

Mon, 04/12/2010 - 12:55 | Link to Comment yabs
yabs's picture

I think even a cabbage could see that they are bluffing?

Mon, 04/12/2010 - 13:28 | Link to Comment emsolý
emsolý's picture

yeah it could see it, but then, it couldn't tell anyone, for, as we all know, cabbages (ca-bitches?) don't speak.

Mon, 04/12/2010 - 13:11 | Link to Comment Cyan Lite
Cyan Lite's picture

This time is no different.  I'm quite bullish, not because the fundamentals suggest so, but because the tape says so.  Without a doubt we're in a bubble.  Using history as a guide, we know that these modern bubbles last 3-5 years.  We saw a good 3 year run up in the Nasdaq, and a good strong 5 years of housing market bubble (late 2001 - 2006).  If this rally is credited to start in March 2009, that means it could be 2012 before we see any kind of correction.  (Probably just in time for the 2012 election to scare the bejeezus out of everybody once again to keep Obama in office).  Until then, I'm long by buying front-month SPY calls with wreckless abandon.

 

 

Mon, 04/12/2010 - 13:20 | Link to Comment yabs
yabs's picture

cyan

I seriously doubt this one can last that long

Are you quoting 2012 then as part of the Mayan prophecy?

 

Mon, 04/12/2010 - 14:08 | Link to Comment Robslob
Robslob's picture

Might as well give everyone hope this will actually last until 2012...maybe the Mayan calendar was 2 years ahead of itself...typical for smartguys...

Mon, 04/12/2010 - 15:57 | Link to Comment market cynic
market cynic's picture
by Bananamerican
on Mon, 04/12/2010 - 08:48

"Spanky's got that royal jelly...we'll be fine"


 

 

The royal jelly is so you won't scream when you bend over for your Quantitative Easing.

Do NOT follow this link or you will be banned from the site!