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Most people have some idea what a market bubble is. Prices go up really fast, far beyond any rational valuation, and you can't move for people telling you how this is The Next Big Thing™

Then the bubble pops.

And everyone who didn't make money from the bubble celebrates the return of 'sanity', condescendingly snorts at the poor souls who rode the wave, believed the hype and lost.

FINALLY, markets can resume their role as supreme arbiters of truth.

Rejoice! The oracle of 'fair value' has returned from the wilderness!

There's a sort of acccepted model of how bubbles work too. Organic events that start gradually, suddenly get crazy as word spreads, then they end. There's even a neat, tidy framework to follow...

Overlay that path on the chart of any asset that's been hyped to infinity and the pattern roughly repeats time and again. ARKK is a recent example 👇

Took a little time for the 'return to normal' period to play out, but a decent fit overall. 

The problem with these models? The real world is far messier

See, people tend to focus on destinations rather than journeys. The same way that everyone loves to call a top/bottom, even though all of the interesting stuff happens in between!

In other domains we simply don't think like that. It's all about the journey. That's why every film loosely follows "the hero's journey"

Which is where the echo bubbles come in...

These are classic echo bubbles. Investors refuse to give up on ideas that recently made them a lot of money and so they keep piling back in. The echoes gradually fade away, until serial disappointments kill the faith ~ Ruchir Sharma (Rockefeller Group)

I shared this excellent thread to the Macrodesiac group yesterday 👇

The All Clear Echo was originally introduced by Paolo here (back in August 2022).

Essentially, the market had priced in a lot of bad news way too soon. Subsequently, investors decided that actually, things aren't so bad. We're priced for an absolute sh*tshow and the data isn't backing that up. Maybe the worst is behind us...

Declare 'all clear' and let those old trading habits die hard...

In other words, if you thought THAT was stupid, hold my beer and watch this!

Stealing Paolo's example, let's take a look at the story of Juniper Networks, a company that burst onto the scene in the '90's to eat Cisco's lunch.

Not this one


Juniper is in a two-horse race with Cisco Systems in the so-called Internet core router market, where Cisco has nearly an 80% share. "But Juniper is fast gaining ground--at the expense of Cisco,"

Much like Nvidia now, they were seen as major beneficiaries of a "this changes EVERYTHING" moment. Expensive hardware was no barrier, just get me in on the Next Big Thing™ (i.e. get me online & speed is everything) 👇

"Even though Juniper's biggest machine costs $400,000 on average—twice the price of Cisco's—customers can't get enough of them. That's a rude awakening for Cisco, which didn't need the fastest routers when it was zeroing in on just the corporate market"
The upstart offered a Net router that was faster than Cisco's rival model and used about two-thirds the power.

The Nvidia comparison is far from a perfect parallel. They're no plucky young upstart taking on the slow incumbent (already happened - they're basically lapping Intel at this point) but expectations are similarly sky high.

Spoiler: Juniper did just fine as a company in the end. It's still around today & doing roughly $5 billion in annual revenues.

But this is a story of stock prices and sentiment, not company viability

Juniper IPO'd in 1999. Like most tech stocks back then it did stupid numbers after listing. The share price rose by 191% on day one (setting a new record), which barely even registers as a blip on the chart 👇

The funny thing is how Juniper's journey deviates from the widely-believed narrative.

If you take the historical story of the Nasdaq index, it peaked on 10th March 2000. That was it. Game over for the tech bubble.

Many stocks, including Saylor's Microstrategy, DID peak that same day and never got close to those valuations again.

Not Juniper.

After a brief sympathy dip, Juniper's stock pushed higher, sold off some more... Then embarked on an absolute face ripper of a rally from May to October 2000...

I've included some screenshots of old news reports on the chart, adding narrative context to the journey. Full size version here 👇

Juniper Echo Bubble for NYSE:JNPR by MacrodesiacTim
NYSE:JNPR The story of Juniper Networks AFTER the tech bubble burst in March 2000

These links are worth reading to build a more complete picture of the narratives shaping that period of time (without the benefit of 20/20 hindsight) 👇

Bear in mind that the exact day the Nasdaq peaked at 5,048, there was zero awareness that 'this is the end'.

CNN's March 10th end of day write up includes a few 'sentiment' parallels to the present day 👇

Ralph Acampora, chief technical analyst for Prudential Securities, said the Nasdaq could hit 6,000 before the end of next year.
The pace would not be surprising.  The Nasdaq, which doubled in little more than a year, first crossed the 4,000 mark just over two months ago, as investors chase high-growth stocks that they believe are impervious to higher interest rates.
The Federal Reserve hiked rates four times since June, and analysts expect tighter credit ahead. Against this backdrop, blue chips have tumbled, as stock investors fret that higher borrowing costs will stifle profitability.
"Rising rates won't hurt the new techies, but they might impact the 'old economy' customers," Larry Wachtel, market analyst at Prudential Securities, wrote in a note to clients Friday.

None of this is to say that Juniper is anything like Nvidia, either in this context or as a company.

However, there are similarities in the emotions, and the general feeling of the time that the worst is behind us and our favourite stocks are impervious to rate rises because we're so in love with them.

Quants and academics can crunch numbers as much as they want, but the inescapable truth is that the cycle of human emotion is the only one that reliably repeats, and it's VERY hard to model...

I'm not saying this time's the same... 👇  

But I'm not saying it's different either.

Every cycle has its own unique features, different levels of euphoria and despair. In the end though, it's still a cycle.

I think it’s essential to remember that just about everything is cyclical. There’s little I’m certain of, but these things are true:
Cycles always prevail eventually.
Nothing goes in one direction forever.
Trees don’t grow to the sky.
Few things go to zero.
And there’s little that’s as dangerous for investor health as insistence on extrapolating today’s events into the future.
~Howard Marks

Love that quote. One to keep in mind as we work our way through the final innings, and flail our way towards whatever the 'new normal' looks like... 👇

Tim’s Unpopular Theories
Predicting the future is hard - “anything can happen and it probably will” We prefer the alluring illusion of certainty but the real world just doesn’t care about our feelings…