EC A Bull Market Is A Bull

Here’s a quote I picked up on Twitter a few weeks ago—it’s attributed to Richard Russell (paraphrasing):

“A bull market is a bull. It tries to throw off its riders.”

Let’s go back in time to the dot-com bubble of the late 1990s. It’s easy to look at the chart below and say, “Buy stocks in 1996, sell them in 2000. What’s so hard about that?”

We tend to forget how hard things actually were…

As you can see, there were a lot of bumps along the way. Not the least of which was the LTCM/Russian debt default crisis, which was responsible for a 20% drawdown in the NASDAQ 100 (^NDX)—in the context of a bull market! Not to mention 1997 and all the other associated volatility along the way.

There were plenty of opportunities to panic out of that trade, take your profits because you had made “enough” money, and sit and watch helplessly as the bubble got even bigger.

Another Opportunity to Panic

I bring this up because we’ve had a sizable correction in the inflation trade… concurrent with getting some economic data that we have even more inflation than we thought!

There are some other things going on, like a surge in infections and the (scary music) “delta variant.” With regard to COVID, I would like to draw a parallel with the early 2000s and our fear of terrorism.

The terrorist attacks on 9/11 obviously had an enormous impact on the markets. For the next five years or so, anytime a firecracker went off anywhere in the world, a bomb threat was called in, or a suspicious package was reported, it set off convulsions in the financial markets.

With the Madrid bombings in 2004 and the London bombings in 2005, the impact on the financial markets became more and more attenuated until the market simply stopped caring.

The markets actually closed up on the day of the London bombings, after a furious rally.

Likewise with the virus. The first time around caused a crash. The second time around, it’s causing a small correction. The third time around, the market will rally.

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I’ve been writing about the history of inflation and the Fed in The Daily Dirtnap a lot lately— more

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