The five stages of a bubble popping
In the 400-year history of stock markets "there has been a long succession of financial bubbles," Ferguson says. "Time and again, asset prices have soared to unsustainable heights only to crash downward again."
It's an all-too-familiar cycle, in fact, so familiar is this pattern -- as described by the economic historian Charles Kindleberger -- that it is possible to distill it into five stages:
1.
Displacement: "Some change in economic circumstances creates new and profitable opportunities." Last year's historic bailout, election, new ideology.
2.
Euphoria or overtrading: "A feedback process sets in whereby expectation of rising profits leads to rapid growth in asset prices." Goldman is proof.
3.
Mania and bubble: Prospects of "easy capital gains attract first-time investors and swindlers eager to mulct them of their money." More bubbles: 2010-2011.
4.
Distress: "Insiders discern that profits cannot possibly justify the now exorbitant price of the assets and begin to take profits." Wall Street replays 2007-2008.
5.
Revulsion or discredit: "Asset prices fall, the outsiders stampede for the exits, causing the bubble to burst." Yes, 2008's brutal meltdown repeats in 2012.
The bull, a bubble and another meltdown are virtually certain and accelerating faster than earlier cycles, coming by 2012. How to profit? Ride it up for a couple years, then pray you'll have enough brain left to bail out in time before the crash (most don't) because at that point the euphoria is blinding, like a cocaine addiction.
http://articles.moneycentral.msn.com/Investing/Extra/New-bull-new-bubble-new-meltdown.aspx
It's an all-too-familiar cycle, in fact, so familiar is this pattern -- as described by the economic historian Charles Kindleberger -- that it is possible to distill it into five stages:
1.
Displacement: "Some change in economic circumstances creates new and profitable opportunities." Last year's historic bailout, election, new ideology.
2.
Euphoria or overtrading: "A feedback process sets in whereby expectation of rising profits leads to rapid growth in asset prices." Goldman is proof.
3.
Mania and bubble: Prospects of "easy capital gains attract first-time investors and swindlers eager to mulct them of their money." More bubbles: 2010-2011.
4.
Distress: "Insiders discern that profits cannot possibly justify the now exorbitant price of the assets and begin to take profits." Wall Street replays 2007-2008.
5.
Revulsion or discredit: "Asset prices fall, the outsiders stampede for the exits, causing the bubble to burst." Yes, 2008's brutal meltdown repeats in 2012.
The bull, a bubble and another meltdown are virtually certain and accelerating faster than earlier cycles, coming by 2012. How to profit? Ride it up for a couple years, then pray you'll have enough brain left to bail out in time before the crash (most don't) because at that point the euphoria is blinding, like a cocaine addiction.
http://articles.moneycentral.msn.com/Investing/Extra/New-bull-new-bubble-new-meltdown.aspx
