If this is Anything Like 2000, It’s Gonna Be a Hot Summer

You probably think I am permanently stuck in a state of stubborn bullishness; but you’d be wrong. My natural tendencies are pessimistic. Each and every day, I drive myself to the point of delirium to believe in the optimistic base case scenario. I’ve witnessed the phantasm  and great things of splendour take place in these markets over the past 5 years. On numerous occasions, I’ve attempted to short it, only to regret it shortly thereafter. During the flash crash, by  sheer chance, I had 30% of my book long volatility, which ended up being a longer term negative–as that 100% move in VXX-tits only fueled my appetite for that bastard ETF, eventually leading to heinous losses.

Enough chit-chat.

The recent decline in tech/biotech mirrors the tech bubble of 2000, without question. For this exercise, I will use an old school tech favorite SCMR as an example.

When the bubble popped in March of 2000, SCMR traded north of $30. By early May, the stock traded to a low of $11, a treacherous drop of 65%. Sound familiar?

After the bottom was in place, the shares rose until the end of August, climbing as high as $28.

As a person who was managing money back then, I can tell you that we all felt the worst was behind us. I recall attending this grande partners dinner, hosted by my employer at the time. It was a get together for the largest producers of that firm. We had a lot of laughs and everyone was making money. Little did we know, shortly after that display of grotesque hedonism, the markets were going to collapse and punch the faces in of most of the two-bit salesmen in attendance, myself included. After all, back then, my best trait was sales. I always took a liking to stocks and always knew how to pick winners; but at the end of the day, raising money is a full time job when you’re working at a brokerage firm. You don’t have much time to analyze and mull over investment strategies.

By Thanksgiving of 2000, SCMR hit $7, crushing the helmets and the skulls of everyone who believed in the hype. That was the beginning of the end, a death that lasted until 2003 when the zombies were revived for another go, thanks to George Bush’s tax cuts and his wars.

Bottom line: I do believe there was a bubble in tech and it popped. I also believe we are enjoying a respite that will last through the summer. And, I also believe the markets will be incredibly trying this fall, in others words heading lower in broken elevator fashion. Keep your stops on a tight leash and don’t believe the hype. You can take advantage of it, but never believe it.