It’s not quite 1999 at this point, but it’s been moving in that direction. In about five months’ time, the Nasdaq 100 (NDX) has posted a gain of 20.5%. NDX stocks with greater than 50% y-t-d gains include Vertex Pharmaceuticals (74%), Activision (64%), Tesla (60%), JD.com (58%), Wynn Resorts (54%), CSX (53%), Autodesk (52%), Liberty Ventures (51%) and Lam Research (50%). Amazon’s 34% 2017 rise has increased market capitalization to $481bn (P/E 189). Apple’s 33% gain pushed its market cap to $806bn. Facebook has gained 33% y-t-d, Google 26%, and Netflix 32%.
There’s an interesting similarity to the 1999 backdrop: A Federal Reserve (and global central bank community) way too timid in implementing a ‘tightening cycle’ despite bubbling asset markets. Fed funds began 1999 at 4.75%, after rates were slashed 75 bps late in 1998 in response to the Russia/LTCM financial crisis. Despite clearly overheated securities markets, rates ended 1999 at 5.5% – the same level they were for much of 1998. The Fed was content to let the speculative Bubble run, with memories of the previous year’s near financial meltdown clear in their minds. Moreover, Y2K uncertainties provided a convenient excuse to accommodate the raging Bubble.
On the back of the People’s Bank of China’s forceful interventions, the renminbi traded this week to the strongest level since November. Speculative markets have come to welcome heavy-handed Chinese intervention. The assumption is that Chinese officials are absolutely determined to hold bursting Bubble dynamics at bay.
This post was published at Credit Bubble Bulletin
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