FLASH FRIDAY: Déjà Vu All Over Again?

FLASH FRIDAY is a weekly content series looking at the past, present and future of capital markets trading and technology. FLASH FRIDAY is sponsored by Instinet, a Nomura company.

“This volatility is just nuts. I think many retail investors are jumping in with more enthusiasm than prudence.”

“I can’t come up with a reasonable explanation for some of the valuations that we’re seeing.”

“It’s almost a game of musical chairs.”

Quotes in this week’s financial press about AMC, Bed, Bath & Beyond, BlackBerry, and GameStop?

No, actually those were from a February 1999 Traders Magazine article, Ah, the IPO Voila-tility!

The comments would certainly fit today, as the so-called meme stocks extended their highly volatile 2021 with one of their most volatile weeks. $AMC almost doubled on Wednesday; $BBBY soared 63%; $BB rose a mere 33%. $AMC and $BBBY were down about 20% in early trading on Thursday. 

Lather, rinse, repeat.

Just like in 1999, the prevailing wisdom is a lock to be correct: it’s not sustainable. Twenty-plus years ago, there was no way that start-up firms with half-baked business plans could justify their IPO pops; today, there’s no way that companies with businesses that had been moribund, like movie theaters and brick-and-mortar retail, are suddenly deserving of ultra-rich valuations. 

So most everyone is in agreement that there will be a path from Point A (frothy, risky, and highly speculative, but exciting), to Point B (back to ‘normal’, with much, much lower volatility and valuations). The question is, how rocky (or smooth) will that path be? 

Karl Roessner, the former CEO of E*Trade, acknowledged on CNBC that the AMC rally “is not going to end well,” but he also opined that retail traders are “here to stay.”

That’s a rather sanguine perspective, as it implies that retail traders will get burned, but not go away. That’s contrary to what has happened in the past.    

Nobody knows how it will play out, but institutional traders do not want to see retail liquidity dry up.      

As an aside, the 1999 Traders article correctly threw shade on some Internet high flyers, such as EarthWeb, theglobe.com, Internet America, and audiohighway.com, investments in which went sour within 12-18 months. But the article wasn’t fully prescient: it cast doubt on the $16.9 billion market capitalization of “book and music retailer” Amazon.com, which was more than three times the combined capitalization of Barnes & Noble and Borders Group. 

Amazon’s market cap today? $1.63 trillion.