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phil.frb.org
A very good analysis. Almost everyone believes that we are in a major bubble. The uncertainty is when it will end. Historically the following can be said about bubbles:
1. Bubbles grow at an exponentially increasing growth rate. The growth rate is highest just before the crash.
2. Bubbles always grow larger and last longer than anyone expects.
3. The crash is a total surprise, coming just when it seems that everyone has accepted the idea that it will continue forever. In fact this acceptance is what causes the crash, no new fools left to bid up the price, everyone is already in.
4. Bubbles always go up hard at the end and crash hard. Any pause or small dip in the growth rate is unstable and will be followed promptly by an up spike (more likely) or the crash. Thus "buy the dip" is usually very profitable, dips are not the crash, the real crash will be painfully obvious.
5. The base of the bubble narrows at the top. At first the best tulips go up, then all tulips go up, at then end a select few tulips go ballistic. Then all tulips crash together, usually there are one or two dead cat bounces.
6. Most fortunes made during the bubble are lost. A very few fortunes are made shorting the crash. The enduring fortunes are made by those able to void the crash and buy up cheap assets after the crash (not the tulips, but real assets).
The purpose of this thread is an objective discussion of the current bubble and conjecture about when and how it will end. Of course the opinion that we are not in a bubble must also be considered.
Roger
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