A. Gary Shilling’s November Insight (subscription only) compares the recent FAANG mania with the Nifty Fifty mania of the 1970s and the last tech mania of the late 1990s. His recent BNN article shares some of the highlights, see The Nifty Fifty Have a Message for the Tech Obsessed. Historical perspectives are sooooo important when it comes to money and markets, and Gary has more of that than most. Here’s a taste:
…investors’ focus on a small group of tech companies implies trouble ahead for all equities. That clearly was the case with the Nifty Fifty stocks that riveted investors’ attention in the 1960s and early 1970s. These equities represented rapidly-growing companies, some based on solid long-term growth prospects, while others were simply fads. Overconfidence became so extreme they were labeled “one decision” stocks. They had so much promise that investors only needed to make one decision—to buy them—since they would never need to be sold.
Nevertheless, disappointments began to multiply and the favored few shrank to motor homes (Winnebago), hamburger chains (McDonald’s), amusement parks (Disney) and gimmick cameras (Polaroid). They represented the limbs and outward flourishes of the economy, not the basic guts. By shunning the rest, investors should have anticipated big trouble. The 1973-1975 recession resulted in what was then the deepest since the 1930s, and what was left of the Nifty Fifty collapsed. Panicked investors lopped a zero off of Polaroid’s stock price, as it fell from $140 to $14.
Regardless of the election outcome, Gary sees the likelihood of a prolonged, deep recession continuing in 2021 with escalating global deflationary pressures, long Treasury yields retesting their lows, and the S&P 500 droping 30% to 40% as disappointing earnings combine with plummeting P/E ratios.
I happen to agree, but only time will tell. We all decide which bets we are willing to place and odds we are willing to accept during this crazy time for the history books.
