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Maybe it is. On the other hand, I'm seeing way too many people calling "bubble." My n=2 experience with the late 1990s stock bubble and the early 2000s real es

by apo 8y ago

Maybe it is. On the other hand, I'm seeing way too many people calling "bubble." My n=2 experience with the late 1990s stock bubble and the early 2000s real estate bubble have taught me something: When there's a real bubble, one whose collapse truly threatens to bring down an entire economy, the only people yelling "bubble" will be cranks and nutjobs. Everyone else will be so wrapped up in the rarefied air they're breathing, impressed by their financial acumen, the way they've made a fortune so easily, the rich prospects for the future, that they'll ignore any signs pointing the other direction. As the saying goes, if the wind is strong enough, even turkeys can fly. Except those turkeys actually think they're flying and therefore can't detect the wind blowing them. Here's an alternative hypothesis: The bubble forms by progressively beating the pessimism out of almost everyone. With each correction, the bubble-sayers come out of the woodwark (this article is an example). Then, quite unexpectedly, things turn around, and markets head to higher highs. The next time a decline happens, there are fewer bubble-sayers, and so on. Eventually, the only bubble-sayers are the permabears. When the inevitable happens and the year-after-year lack of a wipeout convinces investors to buy any dip, the permabears finally get their place in the spotlight. At that point, it's all bears, all the time.

ethbro 8y ago
Point. The difference, as the article notes, is that government response to bubbles has varied. And strong enough measures have certainly decreased the severity of downturns. At this point in time there aren't a lot of remaining options, were the world economy to seriously get into trouble. (One reason it was asinine for the US to cut taxes and deficit spend in an economic expansion)
api 8y ago
Maybe after several mega bubbles we are getting better at spotting them?
segmondy 8y ago
In that past, society was less informed. We are very much connected more than any time in history. I'm no were near wall street, but I can access some street gossip forums to find out how investment banks are doing, I can find out which funds lost what and who is laying off who and how many. It's much easier to pluck and sniff out these signals than in the past. I can run a query and find out exactly how many houses sold in a city this month, compared to last month or this time last year. I can see the price difference. I can see how long houses are sitting before they sell, the vast amount of data the ordinary man has access can't be discounted. My hypothesis is that in future bubbles, we will know like we know now, but they will not have a big pop, but rather a very slow deflation that goes on for months or even years. Because people know about it, some will anticipate they can profit from it and keep jumping in and out, whereas most would have stayed out if there was a big pop instead of a slow deflation.

by apo 8y ago

ethbro 8y ago

Point. The difference, as the article notes, is that government response to bubbles has varied. And strong enough measures have certainly decreased the severity of downturns. At this point in time there aren't a lot of remaining options, were the world economy to seriously get into trouble. (One reason it was asinine for the US to cut taxes and deficit spend in an economic expansion)

api 8y ago

Maybe after several mega bubbles we are getting better at spotting them?

segmondy 8y ago

In that past, society was less informed. We are very much connected more than any time in history. I'm no were near wall street, but I can access some street gossip forums to find out how investment banks are doing, I can find out which funds lost what and who is laying off who and how many. It's much easier to pluck and sniff out these signals than in the past. I can run a query and find out exactly how many houses sold in a city this month, compared to last month or this time last year. I can see the price difference. I can see how long houses are sitting before they sell, the vast amount of data the ordinary man has access can't be discounted. My hypothesis is that in future bubbles, we will know like we know now, but they will not have a big pop, but rather a very slow deflation that goes on for months or even years. Because people know about it, some will anticipate they can profit from it and keep jumping in and out, whereas most would have stayed out if there was a big pop instead of a slow deflation.