Irrational exuberance in the markets
I'm looking at you GME
I first heard of the expression “irrational exuberance” used to refer to Robert Shiller’s book by the same name. Shiller is a Nobel prize winning economist who wrote about bubbles and predicted the housing crash and the global financial crisis. That’s an impressive resume.
I do not have a Nobel prize under my belt; nor am I timing the market but I like to do this mental exercise occasionally. I ask myself, if the market tanked tomorrow, and we entered a significant financial correction, what would the books written about this period list as likely signs of irrational exuberance that we missed.
I can certainly think of a few. The most obvious ones to me are NFTs. There was a period of time where everyone seemed to be buying them and flipping them for profit. The market for these has now collapsed but it felt like a canary in the coalmine.
Shortly after, we had the GME experience where a failing company managed to skyrocket 1500% to stick it to the man. It’s certainly a noble cause. We ended up with a similar experience with Blackberry, Bed Bath and Beyond and a few other companies. The whole meme trend peaked with the launch of a meme ETF where main street traders with money to burn can bet on companies with declining revenues, no profit and no prospects in the hopes that reddit users will boost it up.
Recently, there’s the whole saga with FTX and crypto. A lot of the crypto world is built on top of shitcoins, staking, yield farming and defi. All seemingly easy ways to make money out of nothing. I want to explicitly exclude the OG here. I am agnostic to Bitcoin. Though that wasn’t always the case.
Further we have startups that are valued at billions without ever making a penny in profit. In fact, I’m skeptical of the entire gig economy business model. It doesn’t seem sustainable. Unless we automate the people out of it.
Big tech too. The FAANG companies have stratospheric valuations completely detached from reality. Venture capital flowing to anything with the words blockchain or AI in it. Tesla valued at a trillion dollars (before the recent correction).
And how about that housing market. It’s been a money printing machine through the entire pandemic. You couldn’t save fast enough as a renter to keep up with home owners. What lesson would you draw from that? You should obviously own two.
Finally, the zombie companies that can’t meet their debt obligations unless rates stay low mascarading as legitimate businesses are increasingly common.
All it is to say that no one will be surprised in 2030.