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On Saturday afternoon, I wandered into Target to complete a normal springtime ritual: buying a few packs of Topps Heritage baseball cards. It is usually easy. You just walk in around Opening Day, head to the trading cards rack by the cash registers, grab what you need and hand over your hard-earned cash. But this time, no such luck. All I found was a bunch of empty shelves, some dusty Pokémon packs and a tumbleweed. The rumors were true: Baseball cards were back, resellers had cleaned out the inventory, and longtime hobbyists like me were shut out. Then my mind flashed to the two new card shops in town. It felt like 1993 all over again. But this article isn’t about the Junk Wax Bubble that wrecked baseball cards in the mid-1990s. Nope, it is about something more interesting that happened on Tuesday: Topps, the age-old trading card company, announced it was going public via Special Purpose Acquisition Company (SPAC). To assuage would-be investors worried that the company is a one-trick baseball card pony at the mercy of the hobby’s weird ups and downs, it hyped its many new forays into the weird world of non-fungible tokens (NFT). With that, the newly public company put itself at the center of a Venn Diagram depicting pretty much all of today’s investment fads.
Exhibit 1: A Venn Diagram of Fads
Source: Author’s brain, pen, paper and digital camera. Not available via NFT.
To be 100% crystal clear: I am not opining on Topps’ merits as a public company or investment. You can draw your own conclusions about whether an investment in the company will soar or shrink. The more interesting thing, in my view, is the timing—and what that tells us about sentiment and where we are in this bull market.
Niche speculative “investments” are one of the biggest stories of the past few months. First came the SPAC, which is a not-so-new alternative way for companies to go public. Instead of filing for an IPO and accepting all of the paperwork and costs that come with it, startups can merge with a publicly traded holding company. That holding company, which is the SPAC, usually has some high-profile backers from the investment, political or celebrity worlds, and its sole purpose is to raise money to buy a startup in hopes of giving its investors a big payout. Headlines hype them as ground-floor money making opportunities the likes of which we haven’t seen since the late 1990s’ dot-com boom. To us, they seem like a market-driven solution to the huge backlog of private companies that started when Sarbanes-Oxley made IPOs costly and difficult. But SPACs’ white-hot status has seemingly created a huuuuuuge supply glut, if the fierce competition among scores of SPACs for a relatively small number of private firms ready to go public is any indication.
Next came the boom in collectibles, among them sports cards. It stems partly from youngsters bored during lockdown discovering the hobby for the first time, partly from Gen-Xers like me who have maintained our collections since we were kiddos, and partly from high-rollers who hope to net seven figures from selling a certain quarterback’s limited edition signed refractor rookie card. Buy a bunch of boxes in hopes of landing that rare “chase card,” auction it off and ride off into the sunset. It is like the hunt for Upper Deck’s 1989 Ken Griffey, Jr. rookie card times a million.[i]
The last time this happened, producers went bananas, printing about a bazillion cards while creating the illusion of scarcity. The resulting bubble popped around the time the Major League Baseball Players’ Association went on strike, eventually canceling the 1994 season.[ii] The “solution” was to scrap every license except for Topps’, giving them a monopoly on baseball cards and the ability to control supply.
The third, newest fad is the NFT. You might have seen NFTs referred to as “digital art” or “digital collectibles.” I mostly see them as overpaying for a GIF. The NFT could be a digital file of an actual work of art, or a meme, or a New York Times column, or the first Tweet ever. Any and all of these can be reproduced ad infinitum. Like, anyone can go to Jack Dorsey’s feed and just see the first tweet on their own device. But the NFT itself is like a blockchain authentication stamp registered to you, the owner, and it can’t be counterfeit. That manufactures scarcity and hype, enabling NFTs to fetch high prices. Among the many NFTs are sports highlight clips or digital trading cards, which brings us back to Topps. Given its archives, the company can sell NFTs of the most collectible cards in history, exposing it to this fad, too.
Fads like these are normal, and they don’t always occur near market peaks. The Beanie Baby Bubble coincided near perfectly with the dot-com bust, but the last baseball card bubble popped early in the 1990s bull market, long before the Tech bubble inflated. It generally is true, though, that when you get a lot of fads at once, it is probably a sign of universal good cheer and increasing blindness to risk. That doesn’t happen at the beginning of a market cycle or economic expansion, when sentiment is still depressed from the preceding bear market. It usually happens late, when the scars have faded.
For the better part of the past year, my fellow MarketMinder editors and I have preached that, while last year’s market rout was technically a bear market in that it breached -20% and had an identifiable fundamental cause, it acted like a correction in its speed, length and start-to-finish panic. Bear markets are usually slower and longer, and sentiment grinds slowly from false hopes to eek the market is going to zero over several months, if not a year or more. That length, in our view, is what helps the market cycle reset. Last year’s downturn didn’t have that length. Plus, the sector and style leaders before the downturn also continued leading in its aftermath, albeit with some countertrends along the way. Sentiment, meanwhile, became optimistic at warp speed. Fads burgeoned.
And now we have multiple fads wrapped in one company going public. If markets were behaving as they usually do following a bear market, this likely wouldn’t be happening. Not less than 13 months after stocks’ low. In a normal bull market, it should take years to have fads on fads on fads. That we have one now seems like a very good sign that we are much later in this bull market than most headlines suggest.
Not that the peak is today, tomorrow or really anywhere close at hand. Fads can run for a while, and bull markets can run a while alongside them. Sure, baseball cards might face tough sledding if the players strike again after the collective bargaining agreement expires at the end of this season, but that isn’t a market forecast. However, these fads are an indication pockets of euphoria are building. They are also a sign that people are starting to spend lots of money on things that aren’t really investments—and using increasingly bizarre logic to do so. In our experience, it is generally only a matter of time before this mentality spreads from niche, illiquid corners of the commercial world to more liquid, normal markets.
So the lesson now is, take note. Look at the rationales people are using to pay inflated prices for NFTs, sports cards and SPACs. Memorize them. Then, watch for people applying that same logic to stocks later on down the road. That, friends, will be a big indicator that sentiment has leapt too far ahead of reality.
[i] Metaphorically, not mathematically, as that card fetched about $100 back then.
[ii] And robbing Jeff Bagwell of the opportunity to break Roger Maris’s home run record, in the cavernous Astrodome no less.
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