The Care And Feeding Of Bubbles

Dow in 1929    137             Apr. 1926        380          Aug. 1929       89%

Crude Oil           53             Jan. 2007          145         July 2008        75%

Palladium        180            Feb. 2005         572          Feb. 2008         71%

JDSU                  70              Oct. 1998       1,200        Mar. 2000      100%

Apple              0.41             Dec. 1997          4.30         Mar. 2000      79%

*Daily high

GRAPHS –EXAMPLES OF PAST BUBBLES AND COLLAPSES

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GRAPHS –EXAMPLES OF CURRENT BUBBLES AND COMING COLLAPSES

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WHY DO BUBBLES HAPPEN?

Bubbles expand for many reasons, but they always include:

  1. TOO MUCH EASY CREDIT. Examples: Central bank levitations via massive QE, fractional reserve commercial banking, leverage in futures markets, and margin loans for stocks.
  2. COMPELLING STORIES WE WANT TO BELIEVE. Examples: House prices always go up, the Fed has our back, the Greenspan put, the Powell put, a strong economy, we owe the debt to ourselves, unlimited potential with internet stocks, more eyeballs mean huge profits, tax the rich, global warming, lots of cash on the sidelines, fear of missing out (FOMO), low-interest rates forever, government stimulus, shovel ready projects, necessary wars, anonymous cryptocurrencies, the damage will be contained, the virus will not spread… and the beat goes on, but it’s mostly false.
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Disclosure: None. 

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