If, like a lot of folks, the GameStop story has you intrigued, and you happened to have missed this week’s main message, give it a look, in it you’ll find my take. News this morning is that it very much has the attention of the SEC.
“Far more important than rate of interest and the supply of credit is the mood.
Speculation on a large scale requires a pervasive sense of confidence and optimism an’ conviction that ordinary people were meant to be rich.
People must also have faith in the good intentions and even in the benevolence of others, for it is by the agency of others that they will get rich.”
Again, the present market environment is not about fundamentals — the economy, interest rates, company earnings, etc., — it’s about behavior. It’s about mood!
And here, on the leadup to 1929, is from Graham and Dodd’s 1934 classic, Security Analysis — this should sound eerily familiar: emphasis mine…
“The notion that the desirability of a common stock was entirely independent of its price seems incredibly absurd. Yet the new-era theory led directly to this thesis. If a public-utility stock was selling at 35 times its maximum recorded earnings, instead of 10 times its average earnings, which was the preboom standard, the conclusion to be drawn was not that the stock was now too high but merely that the standard of value had been raised.
Instead of judging the market price by established standards of value, the new era based its standards of value upon the market price. Hence all upper limits disappeared, not only upon the price at which a stock could sell but even upon the price at which it would deserve to sell.
This fantastic reasoning actually led to the purchase at $100 per share of common stocks earning $2.50 per share. The identical reasoning would support the purchase of these same shares at $200, at $1,000, or at any conceivable price.
An alluring corollary of this principle was that making money in the stock market was now the easiest thing in the world. It was only necessary to buy “good” stocks, regardless of price, and then to let nature take her upward course. The results of such a doctrine could not fail to be tragic.
Countless people asked themselves, “Why work for a living when a fortune can be made in Wall Street without working?” The ensuing migration from business into the financial district resembled the famous gold rush to the Klondike, except that gold was brought to Wall Street instead of taken from it.”
“Irrationality could go no further; yet it is important to note that mass speculation can flourish only in such an atmosphere of illogic and unreality.
The self-deception of the mass speculator must, however, have its element of justification.
This is usually some generalised statement, sound enough within its proper field, but twisted to fit the speculative mania.
In real estate booms, the “reasoning” is usually based upon the inherent permanence and growth of land values. In the new-era bull market, the “rational” basis was the record of long-term improvement shown by diversified common-stock holdings.”
Yep, Wall Street, and, not to mention, the Fed, are twisting to fit their respective narratives in historic fashion these days…
Have a great day!