The Blow-Off Top Of March 27, 2000—Why This Time Is Not Different

It must be a decade thing. Exactly two decades ago, Alan Greenspan and his merry band of money printers got their panties all bunched-up about the alleged Y2K threat, and threw on the overdrive switch at the Fed’s printing presses.

So within barely three months, the amount of Fed repo outstanding soared from $15 billion in early October 1999 to $120 billion by the week of January 5, 2000. And back in those days, a $105 billion injection of cash into the bond pits was no small thing, as it represented nearly 20% of the Fed’s entire balance sheet.

Fed Repo Outstanding, October 1999-January 2000

As it happened, the Y2K bogeyman was a hoax, but the Fed’s flood of liquidity did not exactly fall silently in the canyons of Wall Street like a tree in the proverbial empty forest. To the contrary, the dotcom bubble was heading into a blow-off top by late 1999 and the Fed’s monetary kerosene fueled the flames to white hot temperatures.

Back then, the center of the bubble was in the NASDAQ 100, which at the end of September 1999 stood at 2400. That already represented at gain of 4X from the 600 level of early 1996, as the stock market launched its ramp to what Bubbles Alan Greenspan famously called Irrational Exuberance at the end of that year.

Of course, the Fed had made a half-hearted effort in the spring of 1997 to cool the bubble, but soon gave up and then actually double-pumped Wall Street in the fall of 1998 when it engineered the bailout of Long-Term Capital Management. But as the chart below makes clear, all of that was just spring training.

During the six-months commencing with the Y2K repo surge after September 1999, the NASDAQ 100 soared by 96%. That is, the market went up by an average of 1% every trading day until it reached an asymptotic high of 4700 on March 27, 2000.


At that point, apparently every mullet, lemming and new age believer that could be sold a share had been rounded up and turned upside down because of a sudden, the music just plain stopped. Nobody had yet heard of Chuck Prince, who was just a lawyer in Sandy Weill’s Citibank behemoth at the time, but in a nearly identical moment during the next bubble in July 2007, the then CEO of America’s biggest bank uncorked one for the ages:



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