Financial Hindsight is Definitely 20/20

Bill Tatro
|
Posted: Nov 22, 2013 12:01 AM
Financial Hindsight is Definitely 20/20

It’s always fun to look back and play Monday-morning quarterback, especially if you weren’t involved.

In 1929, credit and margin were truly a way of life. If you wanted to own a brand new appliance, you could definitely make it happen, no matter your financial circumstance. U.S. businesses were manufacturing for the entire world, the Roaring Twenties were decidedly roaring, and shoeshine boys were handing out stock tips just like a modern-day Jim Cramer. Banks played fast and loose with depositors’ money, and seemingly, there was no way the good times would ever come to an end.

Credit—Depression—War

“Should have seen it coming,” the pundits said. “Obvious to all who were really paying attention,” historians chimed in. “It was only the fools who stayed in the game,” others added.

When Barron’s printed their “rate of cash burn” issue in the late 1990s, dot-com stockholders simply shrugged and said, “They’ll just float a new stock issue.” 20-year-old “techies” would stand on a street corner, preach about a so-called educated business plan, and become instant millionaires as Wall Street welcomed them with open arms. Every company that had the term “dot-com” attached to it was assured of making their stockholders much wealthier than ever imagined. In fact, it wasn’t unusual for people to quit their jobs and simply trade stocks on the beach.

Crash—Recession—War

“Should have seen it coming,” the pundits said. “Obvious to all who were really paying attention,” historians chimed in. “It was only the fools who stayed in the game,” others added.

Essentially starting in 2002, Alan Greenspan’s artificially low interest rates eventually turned home ownership into a game of “flip and pretend.” Banks sliced and diced mortgages and utilized leverage to never-before-seen heights. The world embraced Keynesianism, and saw wealth expand with every uptick of the market coupled with every devalued currency. Moreover, the ultimate collapse of Lehman Brothers and Bear Stearns was completely unimaginable.

Crash—Depression—War

“Should have seen it coming,” the pundits said. “Obvious to all who were really paying attention,” historians chimed in. “It was only the fools who stayed in the game,” others added.

Today, Investors Intelligence reports that “committed bulls” is at its highest point in 26 years, matching the extremes of 1987. Such extremes were also seen in 1929, 1999, and 2008. Indeed, these days we’re experiencing smokescreen earnings reports, significant wealth disparity, and widespread corporate and governmental corruption, all matching levels not witnessed in almost a century. (If you think it’s different this time, visit macroprofitnewsletter.com.) Yet, much like gawkers at an accident site, Wall Street instructs everyone to, “Keep on moving folks, there’s nothing to see here.”

“Should have seen…obvious to all…only the fools.”

Crash? Depression? War?