Throughout history, every major stock market mania has had an identifiable mascot -- a familiar personality who embodies how the healthy advance was overtaken by the fever of speculation that precedes a big market decline.
In 1929, the Great Depression had its Shoe Shine boys. In the mid-1980's, it was the greedy, grasping Gordon Gekko. And, in the late 1990s, the Silicon Valley of the bulls danced up and down Wall Street as the dot-com boom went bust. Today I offer my nomination for the 2002-7 stock mania mascot:
Marcos Esparza Bofill. On Wednesday August 25, 2010 Bofill became an international household name after Uncle Sam came knocking on his front door asking for $172 million in back taxes -- to which he naively replied, "Who's The I.R.S.?"
Turns out, Bofill -- a young garage band guitarist from Spain -- moved to New York in 2006 with one purpose in mind: to make it rich day-trading in stocks. Blithely unaware of the American revenue system and its income tax filing requirements, Bofill spent the next year-and-a-half buying-and-selling HALF A BILLION DOLLARS in stocks, yet neglected to record his gains and losses. After the thrill of the first initial profits wore off, however, Bofill lost all he put into the market (and then some). He had just enough cash left to buy a one-way plane ticket back to Barcelona.
The way I see it, Bofill is an incarnation of the BLIND optimism that surrounded the U.S. stock market in 2006-7. He ignored his own inexperience and followed the mainstream Pied Pipers. And, as the following news items from 2006-2007 reveal, they gave every reason to buy, buy, buy:
- "Coming Soon: Dow 15,000" (msn.com)
- "An Aging Bull Can Still Be A Raging Bull." (New York Times)
- "There's an overriding feeling that we will keep the problems in the credit markets and residential real estate sector from spilling over to the broader economy. That has investors excited about stocks again." (LA Times)
- "What Bad News? Stocks Roar To Record Highs. It's all good, that's the motto right now." (Wall Street Journal)
EWI was among the lone objective voices crying out in the bearish wilderness. On July 17, 2007, EWI's Bob Prechter kicked off his monthly Elliott Wave Theorist with this bold alert:
"Aggressive speculators should return to a fully leveraged short position now. We may be early by a couple of weeks, but the market has traced out the minimum expected rise, and that's enough to act on."
Soon after, as the DJIA neared its own historic October 11, 2007 apex, the October 9 and 10 Short Term Update amped up the urgency of its analysis and wrote:
“Odds have increased that a market high is in place. The structure, coupled with turns in the other markets, suggests a top is in place. The potential, at the least, is four a large selloff... Watch Out! The market faces a stout correction."
And from the October 2007 Elliott Wave Financial Forecast:
“Despite the renewed enthusiasm of investors, there remain many subtle signs that the market is losing steam. One possible outcome is a triangle or running triangle…The structure of the pattern does not preclude a new price high” before turning down.
The 50%-plus, 17-month long free fall that followed speaks for itself.
Then again: One week before the U.S. stock market landed at its 12-year low of March 9, our February 27, 2009 Short Term Update utilized a specific turning pattern to outline a specific time window for the onset of a major upside reversal. In STU's own words:
"By all indication, this pattern is back on track... the turn will come on or near March 10, 2008. Anywhere in this time period may mark a turn, which will obviously be a market low."