In 1999, I and a gaggle of other San Francisco internet founders and CEOs went to an airfield, where we browsed private jets. It made sense that, at 34, I should have a one-bedroom apartment to transport me across the surface of the atmosphere at mach .8, because I was a fucking genius who could afford, on paper, to spend the equivalent of a thousand years of my mother’s salary on a Gulfstream.
A bunch of thirtysomething dicks looking at planes, and it feeling normal, is a decent signal that the canary is dying and these budding masters of the universe are about to get bitch-slapped — which we were. I never got the jet. But I have achieved Mosaic status on JetBlue.
Jamie Dimon, CEO of JPMorgan Chase, defines a financial crisis as “something that happens every five to seven years.” It’s been 11 since the last recession. As you get old enough to observe cycles as actual cycles, you begin to recognize that the economic time you’re in is a point on a curved line, and, sooner than you think, the direction of the line will change. Better or worse.
An asset bubble is a wave of optimism that lifts prices beyond levels warranted by fundamentals, ending in a crash. In 1999, I promised myself that I’d be smarter next time. “Next time” meaning on the cusp of a pop or recession.
So, how do you ID when we’ve entered the danger zone, and should you adjust your behavior? There are several hard metrics for why we may be nearing a full-Monty bubble, including things my NYU colleagues spend a great deal of time thinking about and understand much better. But you don’t need a Nobel to see the similarities between 1999 and 2019. Some of the softer metrics are far better canaries in this particular coal mine.
Signs that markets or a company are about to find themselves on the wrong side of cyclicality
- The metrics around valuations, P/E ratios, and easy credit-inflating bubbles are logical indicators of canaries. Seth Klarman, the most successful hedge fund manager nobody’s heard of, recently warned that the sugar high of stimulus combined with…