Bubble of 2000 Parallels
Some managing money probably weren't around of what occurred in 2000 when the technology bubble peaked by the March of 2000. The parallels of what went on mostly in technology tied to the internet and what is occurring today in not only technology stocks, but every asset class IS SOMETHING TO BE AWARE OF. Some call this unprecedented asset appreciation period the "EVERYTHING BUBBLE" vs the prior two bubbles "Technology" & "mortgage". Before the bubble popped back then the signature of a top in assets was very high speculation on companies that hardly had a business model let alone should have any value at all. That level of speculation isn't quite there yet but valuations in technology are very similar as they were back then. Further, the current market of overall has a 19X plus forward P/E according to Factset which is quite a premium vs last year when it was closer to 16X. In 2000, like today we had an election year, which historically administration especially in recent times goose the economy to boost election chances. The flooding of the financial system at unprecedented levels with $0.5 trillion by the Federal Reserve is a perfect example. Its no coincidence perhaps that asset prices rose since this started to occur. The bubble in 2000 ended not because of some event but from the speculation got so extreme that virtually every dollar available got invested and buyers dried up while small companies began to rush to go public with no business models while others were raising money privately at extreme valuations (this has already reverse in current cycle with WeWorks collapse) and yet others began failing by burning through all their cash. Economically, unlike in 2000 we didn't have monetary policy so supportive of growth nor a trade resolution to support the weakest part of the economy currently: manufacturing. Further, the level of debt today is much higher vs 2000 and stock buy backs supporting asset prices & inflating earnings are as well.
The point of this is to recognized there are signs the current environment is somewhat similar to 2000, but different in that Monetary policy maybe driving asset prices more than anything else. The latest influx of printed money was in direct response to credit beginning to freeze up in the REPO bank market (over-night lending). This is maybe a sign that debt levels are getting extreme. In the end, what may "pop" assets today will likely be driven by central bank's reversal of such low rates or money printing. Alternatively, like 2008, debt (this time corporate debt vs mortgages) begins to weigh on growth causing the economy to turn down. We suspect it maybe a combination of the two and the REPO "crisis" maybe a warning sign.
In the end, we continue to maintain high cash levels across our model portfolios in recognition of the above being very selective on assets that we deem have reasonable valuations and favor those that pay dividends. Please contact us for further details.
At Brecken Capital Advisors we actively manage clients assets through the use of 7 proprietary model portfolios designed to match each client's risk tolerance with our views of the market & economy. We use a combination of ETFs and individual stocks with TD Ameritrade Insitutional as our custodian who does not charge trading fees. Additionally, we transparently measure both cost & performance for our clients. For more insights see our website and disclosures found there at BCA.