It's Beginning To Look A Lot Like... 1999!

Tyler Durden's picture

Submitted by Lance Roberts via,

Review & Dow 20,000

This past week, the market advanced 3% heading towards my target of 2400. The Dow broke above 19700 and is within striking distance of the “psychological” summit of 20,000.


With just 250 points to go, it is extremely likely traders will try and push stocks to that level by Christmas. Woo Hoo!

Caveat Emptor!

Before you go printing up your “Dow 20,000” hats, there is a dark side to the advance.

If you go outside and throw a ball into the air, it will travel until the momentum of the ball is overtaken by gravity. There is, just for a very brief moment, a point where the ball is stationary. However, eventually, gravity wins.

The same is true for market prices. As I discussed on Friday:

“The importance of understanding the nature of reversions is critical for investors. Markets rarely move in one direction for very long, notwithstanding overall trends, without a correction process along the way. While the chart below shows this clearly for the overall market, it applies to individual sectors of the market as well.”


“Importantly, notice the bottom two part of the chart above. When there is a simultaneous culmination of overbought conditions combined with a more extreme deviation, corrections usually occur back to the underlying trend.

This can also be seen in the next chart as well. While the ‘Trump Rally’ has pushed asset prices higher and triggered a corresponding ‘buy signal,’ that signal has been triggered at very high levels combined with a very overbought condition. Historically, rallies following such a combination have not been extremely fruitful.”


While the “exuberance” of the Trump rally has certainly awakened the “animal spirits,” the sustainability of the advance from such egregiously overbought conditions is questionable. David Rosenberg weighed in on this point via The Globe & Mail:

“Okay, so the president-elect is now at 3 percent, again skewed by two or three sectors. Big deal. Ronald Reagan, who was the original ‘Make America Great Again’ advocate (as opposed to a copycat), saw the equity market soar 6 percent in his first month in office.


Guess what? The market peaked less than four weeks into his term and for the next two years we had an economic downturn and a 25-percent slide in the stock market. The combination of rising bond yields, Fed tightening and a stronger dollar took care of that honeymoon.


After all, we all know what happens when the honeymoon is over. The hard work begins.


That slump we just saw in October export volumes and widening in the trade deficit is surely just an early sign of what is to come.


Before The Donald does anything on his first hundred days, something tells me the lagged impact of the tightening in financial conditions associated with the recent bounce in interest rates and appreciation of the U.S. dollar is going to come back and bite the economy in the tush, as was the case heading into 2016.”

It’s Beginning To Look A Lot Like…1999!

It is interesting to watch the excitement build around the market once again as we head into the New Year. There is an optimism rising the “new bull market” has finally arrived and we are set to start an unprecedented advance as the calendar turns. Take a look:

You get the idea. And, as I showed last weekend, investor confidence is extremely high levels as well. But here is the latest from NAAIM which shows managers at a net 101% exposure.


See, it’s all good….for now.

If this market rally seems eerily familiar, it’s because it is. If fact, the backdrop of the rally reminds me much of what was happening in 1999.


  • Fed was hiking rates as worries about inflationary pressures were present.
  • Economic growth was improving 
  • Interest and inflation were rising
  • Earnings were rising through the use of “new metrics,” share buybacks and an M&A spree. (Who can forget the market greats of Enron, Worldcom & Global Crossing)
  • Stock market was beginning to go parabolic as exuberance exploded in a “can’t lose market.”

If you were around then, you will remember. The charts below show a comparison of GDP, Inflation, Interest Rates (10-year) and the S&P 500 between 1998-2002 (dashed lines) and 2014-Present (solid lines). The data is nominal and quarterly.

While inflation rates and GDP growth are substantially weaker than in 1998, the recent turn higher is similar to what we saw during that previous period. Notice in 2000, there was a spike higher in GDP which got the bulls all excited just before the recession took hold.


The same is true for interest rates which rose about 1.5% between 1998 and 2000. Rates then resumed their long-term downtrend in conjunction with the onset of a recession.


Of course, as rates, inflation, and economic growth were rising by small amounts, investors pushed assets prices higher expecting the longest economic growth cycle on record to continue for another decade.


It didn’t.

The last chart gives a better comparison. I have combined interest rates, GDP, and inflation into a single “economic index” for both the 5-year period beginning in 1998 and 2014 to present. I then recalibrated the 2014 index and market to 1998 levels. 

This is where it gets interesting. If you look at the chart you would quickly make the argument that we have 8-10 quarters ahead of us before a problem occurs. However, because we are running at HALF of the previous rate, there is substantially less room to fall before a recession sets in. In other words, in 1998, the economy had to decline from a 7.5% growth rate to hit recessionary levels. 


Considering we are at 2% today, the time to recession will be considerably shorter – like 2-4 quarters kind of short.

For the skeptics, here is the actual data graphed from 1997-2014. Stocks entered the melt-up phase as the “Bullish Mantra” changed from:

Lower rates and lower inflation is good for stocks


Higher rates and higher inflation is good for stocks


The mantra of higher inflation and higher rates is good for stocks has once again returned as stocks enter their “melt-up” phase of the advance. As shown above, it wasn’t the case then and it likely won’t be the case now.


While there is much hope the new President, and his newly minted cabinet, will “Make America Great Again,” there can be a huge difference between expectations and reality. And, like in 1999, there is just the simple realization that eventually excesses will mean revert.

Last One Out, Turns Off The Lights

I know, lot’s of charts, but “bear” with me. (pun intended)

As shown below, the market is currently pushing well into 3-standard deviations above the 50-day moving average. As discussed above, such extensions are rare and do not historically last very long. 


As shown at the top of the next chart, the market is currently at 92% of a full 3-standard deviation extreme. The horizontal dashed red line shows all the previous times the market hit such extreme levels going back to 1992. Short and intermediate-term corrections are common along with more major crashes. 


This last chart shows a longer-term picture of quarterly data back to 1942. With valuations high and the markets extremely overbought, as shown by the vertical red dashed lines, corrections have been common. The highlighted areas show where extreme deviations have collided with really bad outcomes….like now.


Here is the point. Despite the rampant optimism running through “Main Street” and “Wall Street” since the election there is little changed economically speaking. The economy remains weak, labor costs have surged, monetary policy has tightened, and a stronger dollar negatively impacts corporate earnings. Wages haven’t increased much for the average worker and employment is still trending lower.

In fact looking at the primary indicators of things that affect the production side of the economic equation, things don’t look so good.


However, the markets rally on expectations. Therefore, here is the question you must answer:

“After a 200% increase from the financial crisis lows, trillions of dollars injected into the financial markets and the economy, and 8-years of economic growth – exactly what is not already priced into the financial markets?”

Valuations are also a problem (both P/E and Tobin Q-ratios) with investors currently on the wrong side of the equation.


For those long energy-related equities, this is likely a good time to take in profits and rebalance exposure during short-term corrections.

However, the bigger picture is that while long-exposure remains recommended currently, it is also critically important not become overly complacent. Just because the lights are still on and the music “still a pumpin'”, smarter investors tend to quietly exit before the cops show up. 

Just don’t forget to turn off the lights if you are the last to leave.

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small axe's picture

and the economy has mattered since when exactly?

SPX has become an index of monetary and political repression, and it's a bumper crop year

DontGive's picture

Come get your Spiderman towels! On the house, fareeee!

rccalhoun's picture

its looking a lot like 2017

Chris Dakota's picture
Chris Dakota (not verified) rccalhoun Dec 11, 2016 1:21 PM

Why wouldn't the DOW go up with Trump 15% corporate tax plan?

I have heard Europeans are now set to invest in US real estate with Trump Presidency once the CIA/Clinton/Soros/Obama shit show is finished.

peddling-fiction's picture

And then there is offshore money being drummed up to be stashed in Reno, Nevada with Red Shield blessings. Bullish (comes from Moloch by the way).

JRobby's picture

$$$ coming out of bonds / stronger USD 

This ends badly eventually.  Sheep crushed (over and over)

El Oregonian's picture

Helium silly! Up...Up...Up! Let us get high on helium, heady, hilarity, hopium!!! YAYYY!!!!

Crash? Naw, that is fake news stuff!

We don't have no crashes... We Don't have to NO STINK'in CRASHES!!!

beemasters's picture

"It's Beginning To Look A Lot Like... 1999!"

If so, Gold is now just starting its 10-year upward swing.

hannah's picture

dow 36000 might actually be posible this time......go rally monkey.

chubbyjjfong's picture

To the moon on printed money, yeehah, what fucking shitshow. Its beyond fucking ridiculous, Markets, FFS what a joke.

peddling-fiction's picture

+1 chubby "Markets, FFS what a joke."

That is why I really do not take them seriously.

Everything is manipulated all the time.

Kirk2NCC1701's picture

You gonna cry about the rules, or are you gonna use them to get rich?

Winners get rich, losers bitch. No matter what the 'Rules' are. It's been like that for 10,000 years.

You should've bought stocks, not Doom Porn to "jerk off to", i.e. to which misallocate your precious resources.

peddling-fiction's picture

"You should've bought stocks"

You also need to sell at the right time to be a winner chief.

Lots of wannabe paper winners will get participation medals for losing their shirt and then some.

The Real Tony's picture

The basic premise of the stock market is "the most amount of people lose the most amount of money" the rig artists have set everything up for that reality. In ponzi's almost everyone loses.

Raging Debate's picture

Kirk - Yes. take the money and run the next two years. 

ACES FULL's picture

The more things change, the more they stay the same. One big rule is sell wnen you want to, not when you have to.

scintillator9's picture

I am going to enjoy eating extra salty and buttered popcorn when eminent domain comes to one's door one day, but hey, winners get rich and losers bitch, right?

Praise unto Mammon that ALL stocks go up, none ever go down, get delisted, have their dividend cut, there are never flash crashes; and on days like that one day in August, 2015, everyone had no problems logging into their "trading platform" to even trade when "the market" had a little "oopsie" of about 1000 points down, nor did trades take any longer than usual to execute. <extreme sarc for those who were not there that day>

JRobby's picture

What's the difference between jerking off to doom porn and watching Star Trek re-runs?

peddling-fiction's picture

+1 jrobby

Beam me up Scotty, they are onto me and I am losing my mojo... *chuckle*

Turin Turambar's picture

"Markets?" LOL Yeah, and I believe in Santa Claus and the Easter Bunny.  SMH


flaminratzazz's picture

anyone that tries to float that the markets will do this and are doing that and refuse to include the ppt and the fed buying bonds are fake news.

flaminratzazz's picture

LOL fvkinajake! it is only a cold sore, the checks in the mail and WE will not cum in your mouth..



inosent's picture

the trend is your friend.

flaminratzazz's picture

until they catch you long, shut off your trading platform and tank the markets.

you better not play on margin

dark pools of soros's picture

Trillions of chips swirling in the casino and no one leaving anytime soon

Dragon HAwk's picture

Just put that on my credit card will yah?, I'll sell some stocks in the morning to pay it all off.

  Honey ask your old man, if he can spare a couple bucks will yah.

Seasmoke's picture

It really is. I remember it like it was yesterday. That's why although I'm pissed off about all the manipulation. I will continue to stack only Gold (and some Silver)  


I only wish I started reading ZeroHedge in 1999. Would saved me alot of lost $$$$$ and bought much lower priced Gold !!!!!

flaminratzazz's picture

a friend of mine who has brain tumors and is 100% verifiable crazy as fvk, sold his house and bought gold @ around 350 an ounce .. I thought ..what an insane thing to do..NOW, he is selling his gold and stock piling ammo.. I dont know exactly how much he has, but his wife whispered to me .. over a million rounds..

BSHJ's picture

And to think, all it takes is one Apache helicoptor (or a Hellfire from a drone) and it is all gone in a flash.

flaminratzazz's picture

If this guy has one errant spark he will be the first bastard on the moon without a space suit.

(he is a reloader)

Golden Showers's picture

I still beat off manually.

falak pema's picture

An Awesome read about the origins of libertarianism and its literary mentor; whose own mentor inspired HER and LENIN--some irony there!

Enjoy it you Libertarians of the Invisible handed market :

Now that is style and substance in this article.

Hats off! 

tlnzz's picture

“Dow 20,000” 

Icarus is getting very close to the Sun.

SumSUN's picture

Bought some DOG last week.
What have you.

SgtSchultz's picture

When I saw the reporter on FBN bring out the DOW 20,000 hat in gold letters, I sort of had a bad feeling.  Same thing when by barber has started givig me stock tips - two so far.

subversion's picture

party over,
Oops out of time

Kagemusho's picture

The Club is Lucy, The Donald is Charlie Brown, and the Dow is the football. A couple days after the Inauguration The Club will snatch the football, and down comes The Donald.

1929, 1987, 2000, 2008 and now.  It's shearing time for the sheep.

Don Sunset's picture

It will also be the most grand economic crash finale of the system for all to remember because of the amount of other people's money that is bound to be lost.

Vlad the Inhaler's picture

Also right before the 2000 crash, VIX and the market both rose up together.

Greenspazm's picture

Outline of articles by "Lance Roberts"

1. Blah Blah

2. Pimped-up full-technicolor chart that nonetheless conveys basically nothing meaningful

3. Some whimsical obervations that mean basically dick.

4. Go to 1.

Chief Wonder Bread's picture

Last week I had to experience that rare heat from a moralizing believer/broker and why my account was 98% cash (called about something unrelated.)

It's almost as if people think it's a religious virtue thing to be fully invested in the "stock market". Especially now with this 20,000 DOW meme.

I don't care to be lectured to by a twenty-something about 'diversification'. WTF

As I tried to explain, there's also temporal diversification, ie. 'timing'.

Elco the Constitutionalist's picture
Elco the Constitutionalist (not verified) Chief Wonder Bread Dec 11, 2016 5:19 PM

I had the same thing happen a few times. They finally gave up on me, and I finally closed my account.

Snaffew's picture

NONONONO...This time it's different...the economy is growing along with debt and everyone is all in...which leaves the money on the buy side to come from?  Wait, what?  Where is the money on the buy side to come from?

dondonsurvelo's picture

The size of the US bond market is about $40 trillion and the size of the US stock market is $20 trillion.  As the bond market goes into a freefall with rising rates, you will see money shift towards the stock market for yield.  Even a 10% shift to US stock markets is $4 trillion.

As countries around the world, especially in Europe, the Middle East and Asia implode, money will move to the US and to the stock market. 

You can have all the charts in the world, but the one that matters most is capital flow.  Right now capital is flowing to the US.  It does not mean we have a perfect world.  We are just less fucked up than the others.

The market will be volitale at times as it always is, but the next two years should be good for the market.

NaiLib's picture

Might be true. Like the part of cap flows. However we saw that in -99--2000 too. Greenspan popped that. Question is if Yellen has the guts to do it. For every tick bond rates rise. The probability of of beating bonds in equities, will fall. But yes flows are important and stupid.

lemosbrasil's picture

Today, Dow Jones stay away 11% from MA50 in weekly chart.....Just 3 times in last 10 years Dow Jones stay away more than 10% from MA50 in weekly chart....2007, jan-2010 and may-2010......Everybody knows what hapenned in may-2010......the flash crash......05-06-2010......a fall of 10% in a just one day.......see here the 3 times.....


yogibear's picture

Epic melt-up. Wall Street year-end bonus time.

They'll keep pushing it up until all the muppets are participating. 

The Real Tony's picture

The long term trend line for the DOW dating back to 1873 presently cuts through at the 4,000 level. The DOW is almost 500 percent overvalued today by far the most overvalued ever in history.

The Real Tony's picture

The odds for the DOW hitting one thousand before hitting twenty thousand are rising. Just as everyone searched for yield everyone will be searching for alternative investments to stocks. If only P.T. Barnum were still around today.