History might not repeat, but it certainly rhymes
History might not repeat, but it rhymes – especially when markets climb to record highs. Indeed, as markets peak, so does collective optimism. Consequently, experts, economists, and central bankers alike tend to downplay the rising risks, anchor to the “new era,” and declare that ‘this time is different’ – the four most dangerous words ever uttered in investing.
If nothing else, the selected quotes below, from history and today, illuminate the recurring human tendency to rationalise elevated valuations during periods of exuberance.
That was then:
“At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.”
March 2007, Federal Reserve Chairman Ben Bernanke, in testimony to the Congressional committee, just before subprime defaults sent the world spiralling into the GFC.
“The Federal Reserve is not currently forecasting a recession.”
10 January 2008, Federal Reserve Chairman Ben Bernanke, just before the U.S. entered the greatest recession since the Great Depression.
This is now:
“I won’t go into particular names…but they actually have earnings…These companies … actually have business models and profits and that kind of thing. So it’s really a different thing.”
29 October 2025, Federal Reserve Chair Jerome Powell doesn’t think the AI boom is another dotcom bubble, arguing the current wave of artificial intelligence investment is grounded in profit-making firms and real economic activity rather than speculative exuberance.
It’s not unusual to compartmentalise risk. Where Bernanke in 2007 noted the subprime impact “seems likely to be contained”, Powell said, in 2025, AI stocks “actually have earnings…really a different thing” from dot-com speculation.
Human investors have a habit of segmenting a frothy sector (Subprime or artificial intelligence) from the broader market, even in the face of evidence of interconnectedness, because it helps to preserve optimism. And thanks to their positions of influence, the calm reassurances of Fed Chairs amplify herd behaviour. In this case, investors conflate individual chairs’ personal opinions with the aphorism, “don’t fight the fed”.That advice, however, applies to monetary policy settings, not the personal investment musings of the chairperson of the day.
That was then:
“Stock prices have reached what looks like a permanently high plateau…While I will not attempt to make any exact forecast, I do not feel that there will soon, if ever, be a fifty or sixty-point break below present levels…I expect to see the stock market a good deal higher than it is today, within a few months.”
15 October 1929, Irving Fisher, Yale economist, speaking at the Purchasing Agents Association at its monthly dinner meeting at the Builders Exchange Club, 2 Park Ave. Just nine days later, beginning on Thursday, October 24 and then on the following Monday and Tuesday, the Dow Jones had fallen a quarter. By the end of the weekend of November 11, 1929, the index had plunged 40 per cent from its September high. The Dow Jones had lost just shy of 90 per cent before finally bottoming out in July 1932.
Mr Fisher declared that realised and prospective increases in earnings, to a very large extent, had justified this rise, adding that “time will tell whether the increase will continue sufficiently to justify the present high level. I expect that it will.”
This is now:
“Perhaps we should anchor to today’s multiples as the new normal rather than expecting mean reversion to a bygone era.”
“attributes inherent in the current mix of members – including less financial leverage, lower earnings volatility, increased efficiency and more stable margins than in decades past – help to support the towering valuations.”
“Buying stocks at these multiples feels bad,” but a boom in sales, earnings and GDP would “resolve this seemingly untenable situation” by justifying those pricey levels.
24 September 2025 Bank of America note to clients, Savita Subramanian
While Fisher saw a “permanently high plateau” in 1929, Subramanian, mirroring Fisher’s appeal to earnings and efficiency, urges investors in 2025 to “anchor to today’s multiples as the new normal”, listing lower leverage and stable margins as justification.
What the quotes highlight is the tendency to redefine “normal” rather than question sustainability, especially when valuations detach from historical norms.
Expectations for a bright future further reinforce the optimism. In 1929, Fisher said, “time will tell whether the increase [in prospective earnings] will continue sufficiently to justify the present high level. I expect that it will.” Almost 100 years later, Subramanian noted, a “boom in sales, earnings and GDP” will resolve high multiples.
Unfortunately, what these statements also reveal is the human tendency to extrapolate the present well into the future, and usually in a straight line – without any bumps along the way. We (humans) are terrible at predicting turning points.
In both cases, future growth will ‘catch up’ to valuations.
Why the rhyme persists
The rhyme persists because human psychology remains unchanged. During periods of market exuberance, humans default to three psychological traps:
- Recency bias; Recent success becomes a permanent paradigm.
- Narrative fallacy; A tidy “new era” story trumps a messy historical dataset.
- Social proof; When experts like U.S. Federal Reserve chairs and star strategists say, “it’s different this time,” the crowd wants to believe it.
History is replete with terrible forecasts, and they’re easy to find. What matters, however, is understanding that the forecaster is often a victim of the day’s narrative.
In the late 1990s, while ‘market strategists’ became more influential, they didn’t become more accurate. According to reports, on March 10, 2000, the very day the NASDAQ Composite Index hit its then all-time high of 5048.62, Prudential Securities’ chief technical analyst, Ralph Acampora, said in USA Today he expected the NASDAQ to hit 6000 within 12 to 18 months. Five weeks later, the NASDAQ had slumped 34 per cent to 3321 points.
At the same time, Thomas Galvin, a market strategist at Donaldson, Lufkin & Jenrette, declared, “there’s only 200 or 300 points of downside for the NASDAQ and 2000 on the upside.” There were, however, no points on the upside and more than 2000 on the downside, as the NASDAQ crashed to its low on October 9, 2002, at 1114 points.
In March 2001, even as the U.S. economy was sinking into recession after the tech wreck of 2000, Abby Joseph Cohen, then chief investment strategist at Goldman Sachs & Co., predicted the S&P500 would close the year at 1,650, and the Dow Jones Industrial Average would finish 2001 at 13,000 points. “We do not expect a recession,” said Cohen, adding, “and [we] believe that corporate profits are likely to grow at close to trend growth rates later this year.” The S&P500 ended 2001 at 1148, while the Dow ended the year at 10,021 – 30 and 23 per cent below her forecasts respectively.
As Warren Buffett once observed, “forecasts tell us more about the forecaster than the future.”
Here’s the thing: Until the music stops, the experts’ refrains sound rational. When the music does stop, however, the rhyme reveals itself again.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
