Still in 1999? The Timing May Be Shifting

Posted by Brad McMillan, CFA, CAIA, MAI

This entry was posted on Oct 12, 2017 1:06:10 PM

and tagged Commentary

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1999I am at the Commonwealth National Conference in San Diego this week, talking with advisors from all around the country. Similar to the Financial Planning Association conference that I attended last week, everyone here wants to know what the market is going to do. In the short term, I suspect it is likely to keep rising.

But what everyone really wants to know is this: since things continue to go well, have I had second thoughts about my 1999 analysis, which I have revisited a few times here on the blog. The short answer is no. The slightly longer answer is that the timing may—and I repeat, may—be shifting.

A recap

To recap a bit, looking at the economy and the markets here in the U.S., the similarities between 1999 and the present are striking in almost every significant respect. That is, confidence (both consumer and business), Fed stimulus, and market performance all look much like they did in 1999.

Are there differences? Certainly. History, as they say, doesn’t repeat itself, but it does rhyme. You can hear the poetry of “it’s different this time” in the market commentaries that assert that, indeed, it is different this time.

A look at recent developments

Beyond the big-picture metrics that we look at monthly, though, there have also been some recent developments that evoke 1999 even more powerfully. Back then, we had the IPOs of companies with no sales and no real business plan. This time, we have ICOs (i.e., initial coin offerings) of companies with no real sales and no real business plan. Is there a distinction? Perhaps, but we have to consider the possibility that it is a distinction without a difference.

The capper for me, though, was the recent sighting of a successor to Pets.com. This was one of the icons of the boom, founded in April 1998 and shut down in November 2000. It was based on the premise that you could sell dog food on the web. Indeed, you can, but only as part of a much larger company, just as Amazon is doing now. Yet, on TV the other day, what did I see but Chewy.com, which is essentially the same thing!

I don’t mean to make fun of the company, which apparently does have an actual business. But I do have to ask what will allow it to beat Amazon in its category? Why was it acquired this year by a brick-and-mortar retailer. In other words, what makes it different this time?

Looking more like 1997?

With signs of a bubble continuing to pop up, I really don’t see a reason to revise my 1999 thesis. At the same time, maybe 1999 is looking more like 1997. If you remember, you could have made all of the arguments I am making for 1999 and 1997—and been wrong for a couple more years as the economy and markets continued to grow.

With the upswing in economic activity in the rest of the world, this cycle could be getting a second wind and be poised to continue on. With the potential for tax reform, U.S. business and investor confidence, as well as consumer spending power, could get a jolt that would keep us going longer. It is certainly possible the 1999 time frame, which would indicate a downturn in late 2018, may need to be extended. I am keeping an open mind.

There are a lot of maybes and possibilities there, so I have not yet actually changed my mind. Much of the very recent economic good news may have been spurious, due to hurricane effects, so future economic growth here in the U.S. is not as solid as I would like to see. Economics in Europe are sound, but politics are getting worse. Tax reform is possible, but certainly not guaranteed. While there are a lot of possibilities, they are not yet actualities.

Date versus data

For right now, I am still in the 1999 camp, even as I consider stepping back a bit. As always, what matters is not the date but the data. We will keep updating that every month, looking for a sign that the trends are turning. Whether it is 1999 or 1997, at some point we will see a turn, and we will need to spot it as quickly as possible.

Remember, 1999 was a good year, even as 2017 has been a good year so far. Enjoy the good times, as they may endure longer than we think.

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