Will AI and Nvidia someday be on the past manias’ list?
Financial manias are fun while they last. But remember, history shows that all such manias eventually end below their starting point.
Our just-published September Global Market Perspective has a terrific overview:
In a 1997 Special Report titled “Bulls, Bears and Manias,” The Elliott Wave Theorist illustrated three of history’s most dramatic manias — Gouda Tulip Bulbs from 1634 to 1637, the South Sea Company from 1719 to 1722, and the Dow Jones Industrial Average from 1921 to 1932 — and noted that “every mania is followed by a decline that ends below the starting point of the advance.” GMP returned to the idea in October 2023, illustrating no fewer than nine collapsing manias from vaccine makers (BioNTech, Moderna, Novavax) to online delivery companies (Delivery Hero, Just Eat Takeaway and Door Dash) to former high-flying debt markets like green bonds and ultra-long dated debt.
At this point, post-mania declines are clearly still underway. GMP has focused intently on the luxury sector due to its importance as a mood barometer for well-heeled investors. Just last month, one of LVMH’s biggest brands, cosmetics retailer Sephora, cut hundreds of staff in China in its effort to “turn around a loss-making operation in the world’s second-largest economy” (Bloomberg, 8/21/24). The second row of graphs on this chart show three more prominent luxury stocks — Estee Lauder (No. 2 in cosmetics), Kering (No. 5 in market cap), and Burberry (No. 9 in brand awareness) — where “bear-to-date” losses are nearing 70%.
The third row of graphs illustrates price collapses, both short-term and long-term, in a number of critical industrial commodities. Natural gas prices, for example, peaked in 2022 and have fallen 89%. Prices for cobalt, a key indicator of battery demand for electric vehicles, are off 73% since 2022. The London Metals Exchange Index, which amalgamates prices for aluminum, copper, lead, nickel, tin, and zinc, has dropped 26% from its peak in March 2022.
The bottom row of graphs shows three vulnerable economic manias that have yet to recede. Government debt across the 27 countries of the European Union pushed north of €14 trillion this year, while non-performing loans are sitting at their lowest level in decades (note that the scale has been inverted). Meanwhile, collective credit balances at the UK’s six largest High Street banks are inching above £65 billion, easily the highest in history.
While we do not typically refer to manic behavior in economic data, an exception is warranted in this case because post-mania declines always get back to their starting point eventually.
Meme stocks, NFTs, and SPACs all burned hot and then flamed out. Could AI do the same? Could the economy?
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