Kevin Duffy on wars in the Middle East

Wars are the embodiment of collective delusions.  The same laws that govern bubbles apply: the madness of crowds, intolerance for dissent, promotion of false and simple narratives and a rush of euphoria that brings about an orgy of poor decisions.  The good news is that all bubbles eventually burst, reversing a long, ruinous trend and exposing the false belief that supports them.  

In the Middle East there are multiple delusions taking place.  The first is that Israel has a history of acting in self-defense.  The second is that the U.S. has long been a “global force for good.”  The third is that Donald Trump is opposed to “forever wars” and a threat to the military industrial complex.

~ Kevin Duffy, "The End of the Innocence: American Foreign Policy in the Middle East," The Coffee Can Portfolio, August 27, 2025

 

Paramore on the denial phase of an unwinding bubble

I don't mind lettin' you down easy, but just give it time

If it don't hurt now, a-just wait, just wait a while

You're not the big fish in the pond no more

You are what they're feedin' on

Where you're from, you might be the one who's running things

Well, you could ring anybody's bell and get what you want

See, it's easy to ignore trouble

When you're living in a bubble

So what are you gonna do

When the world don't orbit around you?

So what are you gonna do

When nobody wants to fool with you?

Ain't it fun

Livin' in the real world?

Ain't it good

Bein' all alone?

~ Paramore, "Ain't It Fun" (2014)

Jim Rogers on youth, experience and bubbles

… that is what happens in bubbles.  The price goes up because the price is going up. In one sense, what you want in a bull market is a kid who is too young to know that what he is doing is foolish.  You want a kid who will race into a bubble and leverage it higher and higher.  Guys like me will not make nearly so much money because we see what is going on.  The kid does not know why he is making money, which is why he is making so much money.  The rest of us are experienced enough or smart enough to know that this is going to end badly.  What you want is a kid with very little experience and just enough brains to be very dangerous.  But you need to be smart enough to know when to pull out, to save yourself from his lack of knowledge and experience, and that, of course, can be hard to do.  When things go bad, you certainly do not want that kid around— and the kid is probably not going to be around by then anyway.

~ Jim Rogers, Street Smarts: Adventures on the Road and in the Markets

Kevin Duffy on bubbles and anti-bubbles

Q: And what is the conclusion of fifty years marked by excesses and manias? 

A: The most important lesson is that bubbles spawn anti-bubbles.  These are places to hide and plant seeds for the next bull market.  Let’s take the Japan bubble in the late 1980s.  It was fueled by the idea of the visionary bureaucrat: a partnership between business and government.  This was called "industrial policy" and perceived as an improvement over the free market system.  The anti-bubble was the more laissez faire American model, essentially Silicon Valley.  The conventional wisdom was that America lacked competitiveness and its technology sector could not compete without government help.  At that time, we actually invested in Dell, then named Dell Computer, trading for 10-12 times earnings.  Michael Dell started the company in his dorm room and dropped out of college as business took off.  It was one of our largest holdings and turned out quite well. 

Q: So Dell was an investment in the anti-bubble? 

A: Exactly.  If you can identify this pattern, you will constantly be avoiding risk (the bubble) and chasing opportunity (the anti-bubble).  You may not experience all the excitement of the speculative blow-offs, but you’ll certainly achieve above-average returns over time.

~ Kevin Duffy, interview with Christoph Gisiger: "We're Dealing With a Very Different Animal," The Market NZZ, July 18, 2022

Warren Buffett on bubbles

But a pin lies in wait for every bubble.  And when the two eventually meet, a new wave of investors learns some very old lessons: First, many in Wall Street -- a community in which quality control is not prized -- will sell investors anything they will buy.  Second, speculation is most dangerous when it looks easiest.

~ Warren Buffett, 2000 Berkshire Hathaway Chairman's Letter

Kevin Duffy: "This kind of wild frenetic rotation is not unusual at the top of bubbles"

I think we’re in a rotation phase right now.  All of the speculators – young people and day traders – have been drawn into the casino, and they’re not going to leave until they’re flat broke: When the poker table shuts down, they move to the roulette section, and when that stops working, they go to the blackjack table.  This kind of wild frenetic rotation is not unusual at the top of bubbles.

~ Kevin Duffy, "The Next Bear Market Has Already Started," The Market, July 1, 2021

Mark Hulbert on timing a bubble

Needless to say, things don’t go up forever.  Those who nevertheless continue to invest in such an environment do so with the implicit assumption that they will be able to recognize it, in advance, when the bubble is about to pop—and therefore able to leave the party before everyone else.  This is a dangerous delusion, however; not everyone can be the first to leave the party.

~ Mark Hulbert, "The psychology of a stock market bubble," MarketWatch, April 24, 2021

Sometimes people are drawn to investing
because of 'gambler's excitement'

Kevin Duffy on how to navigate bubbles

The roadmap to navigating a bubble lies in its split personalities: limit your exposure to the most bubbly areas and seek refuge in the anti-bubbles.  As the red flags stack up and risks multiply, forget about timing and outperforming the S&P 500.  This is a fool’s errand. 

Resisting the siren song and chaining oneself to the mast is challenging, but easier for the disciplined individual than the investment professional.  A large number of subscribers to this newsletter are employed in the investment industry.  My only advice: try to chart a sound course over appeasing clients, even if it means firing some.  Easy for me to say… I wish you well!

~ Kevin Duffy, The Coffee Can Portfolio, April 26, 2021

Barry Ritholtz dismisses talk of a bubble (2021)

I think we have to be careful about painting with too broad a brush when we talk about sentiment.  I can't ever recall in history where market bubbles were called so fervently and frequently in real time by participants, but we've been hearing people saying "this is a bubble" now since - I don't know, is it five years?  Certainly off the lows last year the bubble drumbeat started.  It's kind of hard to see markets being overly optimistic when there's so much fear on valuation and bubbles.  I know it's very counterintuitive, but it's just not what you typically see when everybody throws caution to the wind and they're all in.

~ Barry Ritholtz, Bloomberg interview, March 23, 2021

Steve Goldstein on the investment experience of GameStop and AMC speculators

And those traders are inexperienced. Cardify, a consumer-data firm, did a survey of 1,600 self-directed investors in GameStop and cinema chain AMC Entertainment, and found that most were inexperienced investors having less than 12 months of experience, and another quarter with one to two years’ experience. Nearly half made their biggest-ever do-it-yourself trading investment in the last four weeks, according to the survey that ended on Monday. 

Why? Of these overwhelmingly young and male investors, 45% said for quick financial profits. Nearly 20% said it was part of a long-term investing strategy, and 16% said to spite big hedge funds and institutional investors, according to Cardify.

~ Steve Goldstein, "GameStop’s meteoric gains have almost entirely disappeared — here’s advice for those who didn’t get out in time," MarketWatch, February 5, 2021

Kevin Duffy on compulsive gambling and the everything bubble

Compulsive gambling is a progressive disease.  The parabolic pattern of a bubble mirrors the willingness to take on risk.  Last week, former darlings like Amazon and Tesla sold off as they lack the sheer adrenaline rush of pumping up the stocks of dying companies and taking down billion dollar hedge funds.  (We witnessed a similar phenomenon in 2000 when “Old Economy” stalwarts were dumped for dot-com lottery tickets.)   Lately, speculators have gone from picking up quarters in front of a steamroller to dodging Ferraris for pennies.

~ Kevin Duffy, "Game Over," LewRockwell.com, February 1, 2021

Kevin Duffy on the GameStop frenzy

There is a cyclical aspect of the the GameStop frenzy few are talking about.  Bob Murphy made an interesting point that this is flipping "The Big Short," which was written by Michael Lewis right after the GFC in early 2010, close to the stock market bottom.  Short sellers were held out as heroes.  A decade later, after stocks have quadrupled and short sellers practically wiped out, they're the bad guys.  And the greedy and reckless speculators dancing on their graves are the heroes! 

We've come full circle, i.e. we're probably at peak euphoria for the so-called "everything bubble." 

As for Robinhood temporarily closing the casino doors for a day, this likley had more to do with existing regulations and capital requirements which go up with increased volatility.  Robinhood apparently had to raise another $1 billion so they could fully open the casino for business on Friday (helping push GME stock up 68%). 

Btw, AOC, Ted Cruz and Donald Trump, Jr. all attacked Robinhood for the same reason.  If they're all on the same side of an issue, laissez faire types have to be suspicious.  This will end in tears for the Reddit crowd who, as Bob said, refuse to take their chips and leave the poker table because they're "mad." 

This is amateur hour at the casino, and some angry, young, ideologically-charged traders are about to learn a very expensive lesson.  Who will AOC & Co. then blame?  Will they bail these people out?  The plot sickens...

~ Kevin Duffy, comment about "Ep. 1825: The Reddit/GameStop Phenomenon," The Tom Woods Show, January 30, 2021

Jeremy Grantham on the everything bubble and "burst of euphoria"

It's the burst of euphoria that typically brings these things end and we are seeing it all around us today.

[...]

When you have reached this level of obvious super enthusiasm, the bubble has always, without exception, broken in the next few months, not a few years.  It's always.  You can't maintain this level of near ecstasy.  It can't be done because you've put in your last dollar.  You are all in.  What are you supposed to do at that point?  You can't borrow any more money.  You can't take any more risk.

~ Jeremy Grantham, "Why Grantham Says the Next Crash Will Rival 1929, 2000," Bloomberg interview, January 22, 2021, 8:00 and 10:00 mark

Lord Liverpool on paper money

The tendency of an inconvertible paper currency is to create fictitious wealth - bubbles - which, by their bursting, create inconvenience. 

~ Lord Liverpool, 1818

(This comment was made "on the eve of Britain's returning to the gold standard after the paper money interlude of the Napoleonic wars," according to Jim Grant.  Grant cited this quote during his podcast on September 26, 2020.)

Peter Atwater on the current financial bubble and coming recrimination phase

Major market tops are a process, not a single event. Markets peak on exhaustion; everyone must be in. Meanwhile, in the background, the weakest leave the party first. 

I don’t pretend to know when the market will top – or if it already has for that matter – but what is already clear is what is ahead: "The Age of Screwtiny." 

By “screwtiny” I don’t mean the plain-vanilla kind of investigation and inspection that naturally arises as confidence falls. That is a given. What is coming will be different. Think scrutiny but with an angry attitude intent on finding those responsible and then nailing them to the wall. 

You see, what is ahead will be the third major betrayal in twenty years. After the dot.com debacle and the housing crisis, the crowd won’t take kindly to yet another bubble burst. 

And today’s bubble is different. This time it isn’t tech stocks or real estate; its illusion. Deception has transcended the financial markets. It’s cultural and it is everywhere. From “influencers” on social media to blitzscaled business start-ups, the past decade has been a Gold Rush in fakery.

~ Peter Atwater, "The Coming Age of Srewtiny," LinkedIn, September 22, 2020

Nathan Anderson on tech bubble 2.0: "I view it as a state-sponsored mess of stupidity of sorts"

We’re in a market where there’s so much liquidity sloshing around, and so much of the retail investment is in hype-fueled industries, that it has attracted and enriched just about every stock promoter capable of telling a basic story. 

A lot of this is fueled by never-ending Federal Reserve liquidity. So the Fed has come in and largely put a bid under everything. Whenever you print trillions of dollars of new money, at any given point there’s a finite number of Treasury bills and high-quality instruments, whether corporate bonds or stocks, and you can bid up multiples to a certain point. But it seems that eventually that money flows into highly speculative names, and what that’s led to is the Nasdaq ripping past new highs, behind a lot of money that’s really going into just about any speculative tech stock with potential. I view it as a state-sponsored mess of stupidity of sorts.

~ Nathan Anderson, "Nikola Short Seller Hindenburg Research Wants to Oust Bad Actors From the Market," Barron's, September 26,2020

Ben Levisohn: "The tech bubble will continue to inflate" (2020)

After gaining 75.7% from its March 23 low through Sept. 2, the tech-led Nasdaq Composite fell 10%, to 10,847.69, over three trading days, its swiftest correction on record.

But one correction doesn’t mean that the story is over, or that the bubble is ready to burst.  To the contrary, the forces that drove stocks such as Apple (ticker: AAPL) and Amazon.com (AMZN) to astonishing heights remain firmly in place.  They include the companies’ continued growth, the Federal Reserve’s determination to do whatever it takes to keep the economy afloat, retail investors’ newfound interest in trading, and maybe even a bit of fiscal largess.  Stocks will remain volatile, but the tech bubble will continue to inflate.

~ Ben Levisohn, "A Market Bubble That Doesn't Spell Trouble - Yet," Barron's, September 12, 2020

Chris Mayer on extinction in biology and business

I’ve been thinking about how the sudden shift in the business environment is, in some ways, akin to extinction events in biology.

Economies also suffer major extinction events. If you were invested in a public company listed in China’s stock market in 1949, you got wiped out when the communists took over. Ditto Russia in 1917. There have been other markets that have gone to zero, or near zero, due to some major economic or political quake. Lots of businesses die all at once (or over a short period of time), just as in a biological extinction event. Of course, there are minor extinction events, too.

Bubbles that pop and leave a trail of bankruptcies. Or when governments change the rules of the game in a severe and sudden way so that companies have to scramble to adjust or just go out of business.

~ Chris Mayer, "Extinction & Survival," Woodlock House Family Capital blog, August 14, 2020

Rob Arnott on the Greater Fool Theory

People buying bubble assets will make money until they don't.  If they don't have a view of what will it take for me to say, "OK, enough already, I'm going to get out," then they are doomed to ride the roller coaster over the top and down.  So without a sell discipline, buying bubble assets is insanely stupid.

~ Rob Arnott, Research Affiliates co-founder, Bloomberg's What Goes Up podcast, July 27, 2020

Kevin Duffy: "The Covid-19 bubble is bursting"

The Covid-19 bubble is bursting as doomsayers backtrack on their death toll models.

The lesson: Do NOT trust self-proclaimed experts when a) dealing with complex phenomena, b) predicting doom, c) promoting massive government intervention, d) using simple narratives and e) gaining the attention of the crowd. At least 99 times out of 100 their fears will be way overblown and the response they're calling for far more damaging than the actual threat.

Now let's apply this logic to the climate change doom-and-gloomers ...

~ Kevin Duffy, April 9, 2020

"CDC Director Counters Media Narrative,
Predicts Covid-19 Death Toll Will Be 'Much Lower' Than Models"
The Western Journal