In this cycle, the acceleration occurred in 2020 and ended in February 2021, during which time the NASDAQ rose 58% measured from the end of 2019 (and an astonishing 105% from the Covid-19 low!).
#Wild rumpus book full
The penultimate feature of these superbubbles was an acceleration in the rate of price advance to two or three times the average speed of the full bull market. In each case, these shared characteristics have already occurred in this cycle.
#Wild rumpus book series
Previous equity superbubbles had a series of distinct features that individually are rare and collectively are unique to these events. As usually happens, the equity bubble begins to deflate from the riskiest end of the market first – as it has been doing since last February. The bottom line is that in general the bubbles in multiple assets, not just equities, have continued to inflate and therefore the potential pain from a break has increased. Today – nerd alert – I will cover more of the definitions, the statistics, the history, and the technical details of superbubbles. Looking back in a decade or two, if bad things have happened to our democracy, the huge surge in income and wealth inequality of the last 50 years (as CEO income moved from about 25x the average worker’s to about 250x) will have carried the largest share of the blame. They have been let down, know it, and increasingly (and understandably) resent it. You can only envy your parents and feel badly treated, which you have been.Īnd then there is the terrible increase in inequality that goes with higher prices of assets, which many simply do not own, and “many” applies these days up to the median family or beyond. Some deal! And if you’re young, waiting to buy your first house or your first portfolio, it is too expensive to get even started. But your wealth compounds much more slowly at bubble pricing, and your income also falls behind. When farms or commercial forests, for example, double in price so that yields fall from 6% to 3% (as they actually have) you feel richer. What nobody seems to discuss is that higher-priced assets are simply worse than lower-priced ones. To allow bubbles, let alone help them along, is simply bad economic policy. Then, as bubbles break, they crush most of those dreams and accelerate the negative economic forces on the way down. As bubbles form, they give us a ludicrously overstated view of our real wealth, which encourages us to spend accordingly. One of the main reasons I deplore superbubbles – and resent the Fed and other financial authorities for allowing and facilitating them – is the underrecognized damage that bubbles cause as they deflate and mark down our wealth. Even more dangerously for all of us, the equity bubble, which last year was already accompanied by extreme low interest rates and high bond prices, has now been joined by a bubble in housing and an incipient bubble in commodities. equities, and the potential pain has increased accordingly. But during the year, the bubble advanced to the category of superbubble, one of only three in modern times in U.S. This time last year it looked like we might have a standard bubble with resulting standard pain for the economy. So, once more unto the breach, dear friends. I doubt speculators in the current bubble will listen to me now but giving this advice is my job and possibly the right thing to do. The experience also makes it easy for me to sympathize with the view that bearish advice in bubbles always comes from old fogeys who “just don’t get it,” because I received that old fogey advice back then and just didn’t listen. This taught me a lesson, and it helped make me cautious. My main stock, American Raceways, tripled while I was on vacation – $7 to $21 – then went to $100 by Christmas, only to lose it all even quicker by the following June, as almost all the fireworks exploded and crashed. I participated in a wonderful micro-cap fireworks display from 1968 to 1969, in which I made a small fortune (7 times the then full cost of a year at business school). For bubbles, especially superbubbles where we are now, are often the most exhilarating financial experiences of a lifetime. In a bubble, no one wants to hear the bear case. The checklist for a superbubble running through its phases is now complete and the wild rumpus can begin at any time. we are in the fourth superbubble of the last hundred years. All five of these superbubbles corrected all the way back to trend with much greater and longer pain than average. There were also superbubbles in housing in the U.S. But before they did, a handful went on to become superbubbles of 3-sigma or greater: in the U.S.
All 2-sigma equity bubbles in developed countries have broken back to trend.
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