Tricky Tops

It has taken 15 years for the Nasdaq to get back to its bubble peak of early 2000. In fact, the technology-heavy index has not really recovered. In real terms, that is, adjusted for inflation, it remains below its 2000 summit.

Widely used gauges for American stocks tend to move together. But the Nasdaq rose tremendously in the late 1990s because of the dot-com boom; hence it lost a lot more than Standard & Poor’s 500 or other indexes.

You could say that the Nasdaq was to the stock market what Florida later became to real estate.

Both those betting on continued gains and those betting on imminent bust lost in these boom-bust cycles. Trying to predict the end is just about impossible. The following observations remain pertinent:

“On January 14, 2000 ….the Dow Jones industrial average peaked, closing at 11,722—in retrospect, a historic watershed. From then on, the benchmark was to fall and fluctuate at lower levels for the better part of a decade. The “top” …. had at long last arrived.

Other major stock indexes, Standard & Poor’s 500 and Nasdaq, went on rising for another couple of months. In March, they too crested. It was as if the bull stayed around long enough to …. prove that it could outlast even the most tenacious contrarian. Then it took leave.

Joseph Schumpeter, the Austrian economist who contributed the term creative destruction to world punditry, in a less quoted comment wrote, ‘history sometimes indulges in jokes of questionable taste.’ History, or rather the market, played a particularly nasty joke ….”    From Ponzi Regulation 

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