When investors develop amnesia…
This time is different…
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Dear Reader,
“The financial memory,” argued John Kenneth Galbraith, “should be assumed to last, at a maximum, no more than 20 years.”
Just so. Yet why 20 years?
This is normally the time it takes for the recollection of one disaster to be erased and for some variant on previous dementia to come forward to capture the financial mind. It is also the time generally required for a new generation to enter the scene, impressed, as had been its predecessors, with its own innovative genius.
Mr. Galbraith authored these words in 1990, some 35-36 years ago.
Yet that was before the internet spread its net. Before asocial media. Before the Federal Reserve could clear out investor memory centers… compress the attention span… and addle the judgment.
I hazard the financial memory has since shortened — from decades to years — to mere months.
Memories Shorten
The Great Depression etched deep, horrible grooves into investors’ memories.
Stocks only recovered their 1929 highs in 1954… some 25 years later.
Yet following 1987’s Black Monday, the “Greenspan put” acquired existence.
Thereafter the Federal Reserve was in the business of holding up the stock market — and holding down investor memories.
Stocks made good their 2000–01 dot-com losses in perhaps six years. And their 2008 losses? In four years.
In March 2020, the coronavirus blew on in. Stocks endured their most vicious harpooning since 1929.
The financial press was frantic with dismal warnings of Dow 10,000 — or lower.
The pangs of painful memories began to bubble, the reverberations of financial hells past.
But Mr. Powell reached for his billy club… set to work… and bludgeoned investors into a gorgeous state of amnesia.
The harder the Federal Reserve clobbered, the more memory it knocked from skulls.
Pummeled
Trillions and trillions of dollars came battening down upon investors.
The Federal Reserve’s balance sheet swelled from a pre-crisis $4.1 trillion to a dizzying $8.4 trillion.
The result?
Within months of the greatest economic discombobulation since the Great Depression, the stock market recaptured all its losses.
Within a few additional months it scaled the record heights, the impossible heights — Dow 30,000 — and beyond.
Today the Dow Jones challenges 50,000.
From decades to years to months… the financial memory is thus reduced.
Investors have forgotten.
New Deliriums, Old Deliriums, Same Deliriums
In early 2026, investors tremble not from fear but from greed. Margin debt runs to record heights — exceeding $1.2 trillion.
Never before have investors borrowed so much money to purchase so many stocks. Overvalued stocks. Wildly overvalued stocks in many cases.
Once again: Investors have forgotten.
They have forgotten the dot-coms. They have forgotten subprime mortgages. They have forgotten the coronavirus.
A new generation of speculators has now entered the stage. As all others before it, it is taken with its own innovative genius.
This bunch Believes in artificial intelligence and the sunlit uplands to which it is leading us.
It believes we inhabit an age of incalculable novelty before which all else fades into noncomparison.
That is, old deliriums have given way to new deliriums.
Yet they are identical at bottom. The generations differ only in their memory spans and their peculiar fascinations.
This Time Is Different
Meantime, the financial memory shortens, the Dow Jones Industrial Average careens towards 50,000, margin debt expands, the gods prepare their popcorn.
Is the business sustainable? The question is a leading question. It very nearly answers itself.
Today’s bubble will pull alongside the South Sea Bubble… 1929… and 2000, argues legendary money man Jeremy Grantham:
The long, long bull market since 2009 has finally matured into a fully fledged epic bubble. Featuring extreme overvaluation, explosive price increases… and hysterically speculative investor behavior, I believe this event will be recorded as one of the great bubbles of financial history, right along with the South Sea Bubble, 1929 and 2000.
I hazard Mr. Grantham is correct. It is a bubble for the annals.
Yet its participants will no more heed bubble warnings than a group of intoxicated beach-revelers will heed a tsunami warning.
“What tsunami? Look, the ocean is as flat as a plane of glass. What are you TALKING about?”
I hazard they are in for a severe lesson — a lesson the wrathful gods are eager to read them.
I have said it before… and today I say it again.
“Experience runs a hard school,” as said old Ben Franklin... “but fools will learn in no other.”
Brian Maher
for Freedom Financial News
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