The collapse

Yesterday Sinan told you about a much-watched market sign (CAPE) that’s flashing yellow. It says you should worry. Sinan says hell no, and he told you why.

But wait. What if… it’s different this time?

Some people are getting seriously bent out of shape over the ominous parallels. They see the gilded age – the 1920s – being replicated in the 2020s. Back then there was the glitter of Jay Gatsby’s mansion. Today we see the gilt and glamour of a Trumpian ballroom.

But beyond the massive and yawning wealth divide (Mellon, Rockefeller, Carnegie = Musk, Zukerberg, Bezos) and the rampant spread of technology (radio, telephone, cars = robotics, TikTok, AI), what are the comparables investors should be fretting over? If any?

Turns out the conspiracists have a lot to digest. Could we actually be reliving the excesses (and impending crash) of the Great Gatsby?

William Birdthistle says so. He was a director of the SEC ((Securities & Exchange Commission – the main US stock market cop), and since leaving that post last year has been a worried man, watching the gold-tinged romp of the 47th president and the market froth he’s encouraged.

“Nick Carraway, the narrator of “The Great Gatsby,” was a bond salesman,” writes Birdthstle in the NY Times. “Today he might work for a crypto exchange or Robinhood, the popular app that allows neophytes to bet on financial options like a game on their smartphones. Robinhood makes a good deal of money from the interest its users pay to borrow money to buy yet more investments.

“Investing on margin, as this practice is known, was a major source of the surge that drove markets to perilous heights in the 1920s. And when stocks began to fall, margin calls — the demands for loans to be repaid by selling the stocks, if necessary — were a major accelerant of the crash.”

Beyond the massive risk created by unregulated crypto (which the Trump family is reaping billions from) other parallels also scream for investor attention.

Like today, the 1920s was a period of recovery, repair and rebellion after a global pandemic that had shut down society and killed millions. Then it was the Spanish flu. This time it was Covid.

New technologies and a speculative frenzy based on them swept through the Roaring Twenties as automobile and telephone stocks soared. Today we have Nvidia, artificial intelligence and the runaway performance of the Magnificent 7. The chip maker is valued at $5 trillion. Apple is worth $4 trillion. Some stocks trade at hundreds of times corporate earnings.

Interest rates then, as now, were low. Borrowing was endemic. Credit flowed like booze. In the 1920s installment plans financed excessive buying. Today millions of consumers just tap their phones or nudge an app.

Unbridled speculation and popularization of stocks drove equities to a six-fold gain by 1929. That massive increase was just eclipsed by American markets in the past three years.

In the 1920s pyramid schemes emerged which bilked huge amounts of money from unsophisticated, novice investors swept up in the get-rich hype. Today we NFTs, crypto exchange collapses and a world in which the American president creates, and sells, a digital currency backed by nothing.

Ultimately, in 1929, the cleansing came with a brutal market crash. By 1932 stocks had shed 77% of their value and the world was in the grip of the Great Depression. Unemployment hit 30%. Real estate collapsed. It would take 29 years to get back to pre-crash levels.

And what has saved us from a repetition, from that day until this one?

Is Trump dismantling investor safeguards?

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Regulation, government oversight and central bank discipline. The SEC, the Fed and a wary Congress have been constant brakes on US market excess. Irrational exuberance and naked investor greed were corralled by the system. And it’s worked. Until now.

“Mr. Trump has been ordering the chaperones removed,” argues Birdthistle. “Since January, his administration has been firing regulators and vigorously tearing down the guardrails that have kept our markets thriving for nine decades.”

It’s true. The SEC has been gutted of staff, like most regulatory agencies in Washington (where the government is still shut down). Crypto regulation has been scaled back, watered down and gelded. The Fed is under constant Trump attack so that interest rates can be slashed, unleashing additional stimulus, credit, borrowing, spending, speculation n toxic froth.

One by one, the guardrails have been breached, or just erased. The president is claiming absolute authority over every aspect of fiscal and monetary policy, now trying to take over control of the central bank, while seeking to unleash capital by removing or softening market controls.

How can this possibly end well? What comes next?

Dunno. Nor do you. Or the SEC guy. Or anyone. History shows succumbing to fear is almost always a bad idea. Unless you really need to sell assets and raise capital (like, for bail) don’t.

By the same token, we need to understand that holding individual equities increases risk. Not having multiple asset classes adds more. Above all, emotion is the enemy of investing. The market routinely hits new record highs. We also know bear markets are short and bull markets long. What happened in 1929 has never reoccurred – because structurally, it can’t. Too many safeguards are baked into the system, and have so far held firm.

Besides, the US economy is fine. Tech advance is awesome. Companies are making bank. The world is not on fire. And Trump is already in descent. That started last Tuesday. Stand back and take a look at a graph of the S&P 500 over the last eight decades. Do you really think it will reverse, when humanity is at its richest point ever?

It’s a hallmark of the market that when new highs are hit, the Chicken Littles squawk. History shows they’ve always been wrong. Short-term corrections, even crashes, turned out to be brief potholes on a steady road up. Those who ignored the panic and fear did just fine by choosing patience over drama.

Are we immune from a market tank?

Of course not. You can’t airily dismiss the parallels with past times. Stupidity is in our genes. Humans will keep making the same mistakes, being as myopic, emotional, arrogant and feckless in the future as in the past. Markets will fall for a while. Folks will freak.

So, be balanced and diversified. And calm.

Because it’s not different this time.

About the picture: “I’m dog sitting my neighbour’s dog, Bailey, for the weekend,” writes Ward, a realtor in southern Ontario.

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2025/11/10/the-collapse-2/