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1999 Redux: Very Young Influencing Market Again?

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    September 18, 2013

    In my 1999 book, Riding the Bear – How to Prosper in the Coming Market, one of the warning signs I noted was the degree to which twenty to thirty year old investors were dominating the euphoric buying of the dotcom companies.

    Even every high school had its investment clubs. CNBC had a show that featured the performances of the best. It was reported how middle-aged parents were having their teenagers help with their investment decisions, because “I don’t understand this tech stuff as well as they do.”

    Not worried or even thinking about valuations or overbought conditions, they thought they had discovered something new, the stock market. And it was a perpetual motion money-making machine that never broke down. Buy at any price and they just keep going higher.

    As I said at the time, it made sense – to them. After all, they had come in near the end of the longest bull market in history. They had no scars from bear markets. Even the 1990 bear market and 1987 crash were ancient history.

    And now Reuters is reporting that not only are investors who were pulling money out of the market throughout the bull market since 2009, now pouring money in at a near record pace, but that the twenty-somethings are leading the way.

    Some excerpts from the report:

    “After one of the strongest bull markets in history young folks have become intrigued by the idea of making money with the click of a few buttons. . . . Investors between the ages of 18 and 24 now hold 11% of all accounts at online brokerage Scottrade . . . Among those under 35, 26% report they are willing to take on substantial risk according to the Investment Company Institute. Sarah Holden, ICI’s senior director, says “These numbers tend to move with the stock market. Since the market has improved, young investors seem to like getting back in the saddle.”

    The report quotes Amanda Clayman, a financial therapist in New York [a what?], as saying“Objectively, young people might know about downturns, but all their experience is with an up market. That is going to skew their perception of what reality is.”

    Hhmm. 1999 all over again?

    When market participants believe the government will always step in.

    This week’s Bloomberg Business Week has one of the clearest and easiest to read studies of the 2008 financial collapse, the steps leading up to it, the cascading horrors and panic in Washington while it was taking place, and the arguments over the steps to take to try to halt it, all through interviews with participants.

    I highly recommend it, especially to anyone who thinks it can’t happen again. The Fed and Treasury Department thought they had everything under control in 2007 (as they do now).

    One of the interesting comments was this by then Treasury Secretary Hank Paulson on the bailout of Bear Stearns and the refusal to subsequently bail out Lehman Brothers, allowing it to plunge into the largest bankruptcy in U.S. history:

    “If market participants presume that a government is always going to step in to save a failing institution, then those market participants will not bother to subject those institutions to the rigorous analysis that is needed.”

    He was referring to how investors, including institutional investors, were buying sub-prime mortgages, and the like without analyzing the risk, and individuals were buying homes with those types of financing also without understanding the risk.

    Does that not directly compare to how stock market participants are now ignoring the slowing economy and earnings, high valuations, and upcoming roadblocks, to continue focus only on the confidence that the Fed is in control and will come to the rescue if needed. Even yesterday’s big rally was in response to Larry Summers withdrawing his name from consideration as new Fed Chairman. All about the Fed.

    To read my weekend newspaper column click here: The Stock Market Reaches For New Highs Even As Risks Rise 

    Subscribers to Street Smart Report: In addition to the charts and recommendations in your secure area of this blog, the in-depth Mid-Week Markets Update will be in your secure area of Street Smart Report.com tomorrow.

    Images: Flickr (licence attribution)

    About The Author – Sy Harding, Street Smart Report

    Sy Harding publishes the financial website Street Smart Report Online and a free daily Internet blog at Sy’s Free Blog. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!

    It includes our research and analysis on the economy and markets, and provides charts and buy and sell signals on the major market indexes, sectors, bonds, gold, individual stocks and etf’s, including short-sales and ‘inverse’ etf’s.

    It provides two model portfolios as guides. One is based on ourSeasonal Timing Strategy, one on our Market-Timing Strategy.

    In depth updates are provided every Wednesday, with interim ‘hotline’ updates every time we make a trade. An 8-page traditional newsletter Street Smart Report is provided on the website every 3 weeks, in pdf format for viewing or printing out.

    There is the Street Smart School of online technical analysis ‘seminars’,commentaries to keep you ‘street smart’ about Wall Street, and much more.