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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Kailash who wrote (48089)	12/24/2005 2:11:43 AM
From: ahhaha	Read Replies (1) \| Respond to of 110194

Applied to our discussion here, the question is whether the prices of real goods (Sachwerte) is undergoing a rise in anticipation of higher prices and devalued currencies, a feedback mechanism that in itself causes prices to rise. Can't be applied to material goods because in that case the equation parameterized as: p^(t + dt)/p^(t) = [p(t)/p(t - dt)]^b requires that b < 1 because physical goods have delivery. All of Sornette's examples use representations of value, i.e. currencies representing value of physical goods, not value of physical goods. A representation is an abstraction and so isn't constrained physically. A representation can feedback on itself without limit because it's driven by an abstract quantity, fear , and can have instantaneity. In the currency case a jump in devaluation causes fear of loss of buying power without any intermediary transaction of conversion necessarily having occurred. In contrast, with physical goods the build of inventory and exponential growth of delivery time from constant increase in transaction volume causes b < 1. This constrains the feedback so prices can fall back to equilibrium. Can we have representation of physical good value undergoing hyperinflation with no actual goods moved? Briefly, but autocorrelated feedback in the knowledge that price jumps are developing, makes dealers withhold inventory which causes an evolving b > 1 to invert to b < 1. Why? The buyer loses confidence that what will be bought will be delivered, and so doesn't buy even though expectations of higher price still exist. Gold is a likely candidate for power-law growth and subsequent crash. Gold is physical subject to delivery. I often give the coin shop waiting line analogy. The wait to convert from or to gold, a delivery constraint, increases dt, and so sends b < 1. People get frustrated and quit the long line before they get to the shop even as gold soars. There's another mitigating or constraining factor. Your knowledge of this mechanism will affect you and others to cause it to abort before the critical time is reached. If the number of others is great enough, the hyper state will never even be entered.