December 13, 2024 | Read Online

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"Be fearful when others are greedy and greedy when others are fearful."

— Warren Buffett

Friday top-signal charts

The Nasdaq Composite Index breached 20,000 for the first time this week, a remarkable milestone considering it hit 10,000 just four and half years ago.

Could it be 40,000 in another four and a half?

It's possible.

Nasdaq is up 34% year to date, which seems like a lot given it was up 43% last year, as well — it's hard not to think things are getting frothy after a two-year run like that.

In the second half of the 1990s, however, Nasdaq had five straight years of 20%+ gains.

In total, the Nasdaq was up 566% in that time.

Investors have to be very excited about some narrative (like the advent of the internet) to move a large index that much, so it doesn't happen often.

Right now, though, we have two narratives that investors are very excited about — a nascent AI bubble and the incoming Trump Administration.

Marc Andreessen, who kicked off the dotcom bubble by inventing Netscape, says that AI might be "the most important — and best — thing our civilization has ever created."

That certainly seems like something for investors to get excited about, and assuming you're not an AI researcher, how better to express that excitement than buying stocks? (Or crypto.)

US investors seem almost equally excited about the incoming Trump Administration — the growing belief that Trump will deliver on all of his market-friendly policy proposals and fewer of his market-unfriendly ones is also a reason to buy stocks. (And crypto.)

Could the two together combine to create another Netscape moment for markets?

The cautionary tale is of course that the Netscape moment eventually led to a dotcom bubble that ended with the Nasdaq falling 78% from its March 2000 peak.

Are we starting along a similar path?

Or have we already travelled most of it?

Let's check the charts for warning signs.

I don't believe in top signals, but…

Per this chart from Jim Bianco, a University of Michigan survey found that nearly 60% of US households expect stocks to rise over the next year — well above the dotcom era, even.

Getting greedy?

The same survey found that the median household owns about $250,000 of stocks.

Record ETF inflows:

Ned Davis Research notes that equity ETFs have averaged a record $4.7 billion of inflows per day over the past 50 days.

Crypto inflows are booming, too:

Bitcoin is winning more converts from TradFi, with some even perceiving it as a proxy indicator for tech industry innovation and deregulation.

If that's not frothy enough:

The hottest crypto of the week is Fartcoin, a meme that is now worth $734 million after a near 50% rally today. I don't know what Fartcoin is a proxy for, but it can't be anything good.

Betting big:

Data from @DataTrekMB shows that venture firms invested a record $14.5 billion into AI startups in November alone.

Chart crime exposed:

@DualityResearch offers a helpful reminder that charts can be just as misleading as words — stocks have gone up a lot, but per the second one here, earnings have gone up a lot too.

The thinking man's valuation metric:

@MikeZaccardi notes that the "equity risk premium" (the implied expected return for stocks above the risk-free rate) is at a 22-year low.

Why stocks might be more expensive than they used to be:

Per this graphic from @johnauthers, investors have far fewer stocks to choose from than we used to, so we might just have to pay more for them.

Still, signs abound that people are getting greedy, so it might be time to be fearful.

But it might also be time to rush in, as George Soros might advise: "When I see a bubble forming, I rush in to buy."

So, which one is it?

The only thing I know for sure is that it will be fun to find out.

Have a great weekend, fearless readers.

— Byron Gilliam

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