Archives of “Economic bubbles” tag

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George Soros quotes

  
  Education
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The Hungarian-born financier will therefore no longer be able to move markets. But many of his aphorisms and apothegms will long continue to apply. Here are some of the best.
QuoteWhen I see a bubble forming I rush in to buy, adding fuel to the fire. That is not irrational.”
QuoteWell, you know, I was a human being before I became a businessman.”
 
Markets are designed to allow individuals to look after their private needs and to pursue profit. It’s really a great invention and I wouldn’t under-estimate the value of that, but they’re not designed to take care of social needs.”
QuoteThe financial markets generally are unpredictable. So that one has to have different scenarios… The idea that you can actually predict what’s going to happen contradicts my way of looking at the market.”
 

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20 Signs That The Global Economic Crisis Is Starting To Catch Fire

  
  Education
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If you have been waiting for the “global economic crisis” to begin, just open up your eyes and look around.  I know that most Americans tend to ignore what happens in the rest of the world because they consider it to be “irrelevant” to their daily lives, but the truth is that the massive economic problems that are currently sweeping across Europe, Asia and South America are going to be affecting all of us here in the U.S. very soon.  Sadly, most of the big news organizations in this country seem to be more concerned about the fate of Justin Bieber’s wax statue in Times Square than about the horrible financial nightmare that is gripping emerging markets all over the planet.  After a brief period of relative calm, we are beginning to see signs of global financial instability that are unlike anything that we have witnessed since the financial crisis of 2008.  As you will see below, the problems are not just isolated to a few countries.  This is truly a global phenomenon.

Over the past few years, the Federal Reserve and other global central banks have inflated an unprecedented financial bubble with their reckless money printing.  Much of this “hot money” poured into emerging markets all over the world.  But now that the Federal Reserve has begun “tapering” quantitative easing, investors are taking this as a sign that the party is ending.  Money is being pulled out of emerging markets all over the globe at a staggering pace and this is creating a tremendous amount of financial instability.  In addition, the economic problems that have been steadily growing over the past few years in established economies throughout Europe and Asia just continue to escalate.  The following are 20 signs that the global economic crisis is starting to catch fire…

#1 The unemployment rate in Greece has hit a brand new record high of 28 percent. (more…)

Speculation, Trading, and Bubbles-by José A. Scheinkman (Book Review )

  
  Education
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SPECULATION-TRADING-BUBBLESTo pay tribute to one of its most famous graduates, Kenneth J. Arrow, Columbia University launched an annual lecture series dealing with topics to which Arrow made significant contributions—and there were many. Speculation, Trading, and Bubbles stems from the third lecture in the series given by José A. Scheinkman, with adapted transcripts of commentary by Patrick Bolton, Sanford J. Grossman, and Arrow himself. I’m going to confine myself here to a few excerpts that encapsulate some of the lecture’s key points, ignoring the often perceptive commentary.
Scheinkman offers a formal model of the economic foundations of stock market bubbles in an appendix to his lecture, but he lays out its basic ideas in the lecture proper. The model rests on two fundamental assumptions—“fluctuating heterogeneous beliefs among investors and the existence of an asymmetry between the cost of acquiring an asset and the cost of shorting that same asset. … Heterogeneous beliefs make possible the coexistence of optimists and pessimists in a market. The cost asymmetry between going long and going short on an asset implies that optimists’ views are expressed more fully than pessimists’ views in the market, and thus even when opinions are on average unbiased, prices are biased upwards. Finally, fluctuating beliefs give even the most optimistic the hope that, in the future, an even more optimistic buyer may appear. Thus a buyer would be willing to pay more than the discounted value she attributes to an asset’s future payoffs, because the ownership of the asset gives her the option to resell the asset to a future optimist.” (pp. 15-16)

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MRI’s of Succesful Traders

  
  Education
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I’ve seen this study making the rounds on several websites now as a type of neuroeconomic confirmation of Buffetological principles…

Perhaps procedure might be slightly useful as a means of seeing physical brain improvement by training– such as that found through meditative practices.

“Traders who buy more aggressively based on NAcc signals earn less. High-earning traders have early warning signals in the anterior insular cortex before prices reach a peak, and sell coincidently with that signal, precipitating the crash. These experiments could help understand other cases in which human groups badly miscompute the value of actions or events.”

“Neuroeconomists Confirm Warren Buffet’s Wisdom”: (more…)

The Crash of 1929 -Video

  
Education, Video
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Here is a link to the transcript of this documentary.

Narrator: At sea and on land, everyone seemed to be making money. It was a stampede of buying. And major speculators like John Jacob Rascob whipped up the frenzy. He told readers of The Ladies’ Home Journal that now everyone could be rich. September 2nd, Labor Day. It was the hottest day of the year. The markets were closed and people were at the beach. A reporter checked in with astrologer Evangeline to ask about the future of stock prices. Her answer: the Dow Jones could climb to heaven. The very next day, September 3rd, the stock market hit its all-time high.

Ben Karol, Former Newspaper Delivery Boy: My father and I had an ongoing discussion about the stock market. And I used to say, “Pop, everybody’s getting rich but you. You know, you work so hard and you’re never going to make a nickel. All you do is you keep delivering these newspapers and that’s about it. The guy who’s shining shoes is in the stock market, the grocery clerk is in the stock market, the school teacher’s in the stock market. The teller at the bank is in the stock market. Everybody’s in the stock market. You’re the only one that’s not in the stock market.” And he used to sit and laugh and say, “You’ll see. You’ll see. You’ll see.”

Narrator: On September 5th, economist Roger Babson gave a speech to a group of businessmen. “Sooner or later, a crash is coming and it may be terrific.” He’d been saying the same thing for two years, but now, for some reason, investors were listening. The market took a severe dip. They called it the “Babson Break.” The next day, prices stabilized, but several days later, they began to drift lower. Though investors had no way of knowing it, the collapse had already begun

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Stress hormone linked to financial crisis

  
  Education
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STRESS TRADINGThe stress that financial traders suffer during periods of high volatility in the markets reduces their appetite for risk, according to a study led by Cambridge university neuroscientist and former Wall Street trader John Coates. This may prolong financial crises.

The research, published in Proceedings of the National Academy of Sciences, combines field and lab work. Prof Coates and colleagues discovered that levels of the stress hormone cortisol increased by 68 per cent on average in a group of City of London traders over eight days in which market volatility increased.

 The scientists took this finding to Addenbrooke’s Hospital in Cambridge where they used pharmacology – hydrocortisone tablets – to raise cortisol levels in volunteers, also by 68 per cent over eight days. Participants then played an incentivised risk-taking game. The appetite for risk collapsed, by as much as 44 per cent according to one measure, in those with raised cortisol. (The study was double-blinded with a control group taking dummy tablets.) (more…)

Must see 4 Charts

  
Analysis, Education
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There’s a reason why I warn you to get out of a bubble a little early rather than a little late. It’s because the first wave down tends to happen in a matter of a few weeks or months, sometimes days. It’s fast and furious.

I know this because I’ve studied every major bubble in modern history – all the way back to the infamous tulip bubble in 1637, when a single tulip cost more than most people made in a single year! And what I’ve seen in each case, without exception, is that bubbles do not correct in nice stair steps when they’re coming off their highs. They burst, crash, collapse, clatter, clang – however you want to say it!

When the bubble deflates, it typically crashes 50% minimum to as high as 90%. But it’s that first wave down that can wipe out 20% to 50% right off the bat!

Below I have four charts that make the argument for me.

They show the 1929 bubble burst… the 1987 crash… the 2000 “Tech Wreck”… and the latest of 2015 from the Red Dragon itself – China’s Tsunami.

In each case, the fact that these bubbles were destined to burst were only obvious to the few that weren’t in denial. Most give into the bubble logic that new highs are the new norms. They think: “This time is different.” It’s not! It never is.

It’s always hard to predict exactly when bubbles will peak and crash. It’s like dropping grains of sand on the floor. A mound will build up – becoming like a Hershey’s kiss that grows more narrow at the top. At some point, one grain of sand will cause the avalanche. Who knows which grain of sand that one will be!

Here are those charts. Like I said, they speak for themselves! (more…)

MRI’s of Succesful Traders

  
  Education
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I’ve seen this study making the rounds on several websites now as a type of neuroeconomic confirmation of Buffetological principles…

Perhaps procedure might be slightly useful as a means of seeing physical brain improvement by training– such as that found through meditative practices.

“Traders who buy more aggressively based on NAcc signals earn less. High-earning traders have early warning signals in the anterior insular cortex before prices reach a peak, and sell coincidently with that signal, precipitating the crash. These experiments could help understand other cases in which human groups badly miscompute the value of actions or events.”

“Neuroeconomists Confirm Warren Buffet’s Wisdom”:

“Seeing what’s going on in people’s brains when they are trading suggests that Buffett was right on target,” says Colin Camerer, the Robert Kirby Professor of Behavioral Economics at Caltech.

That is because in their experimental markets, Camerer and his colleagues found two distinct types of activity in the brains of participants—one that made a small fraction of participants nervous and prompted them to sell their experimental shares even as prices were on the rise, and another that was much more common and made traders behave in a greedy way, buying aggressively during the bubble and even after the peak. The lucky few who received the early warning signal got out of the market early, ultimately causing the bubble to burst, and earned the most money. The others displayed what former Federal Reserve chairman Alan Greenspan called “irrational exuberance” and lost their proverbial shirts.

18 Signs That The Global Economic Crisis Is Accelerating As We Enter H2 2014

  
Analysis, Education
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A lot of people that I talk to these days want to know “when things are going to start happening”.  Well, there are certainly some perilous times on the horizon, but all you have to do is open up your eyes and look to see the global economic crisis unfolding.  As you will see below, even central bankers are issuing frightening warnings about “dangerous new asset bubbles” and even the World Bank is declaring that “now is the time to prepare” for the next crisis.  Most Americans tend to only care about what is happening in the United States, but the truth is that serious economic trouble is erupting in South America, all across Europe and in Asian powerhouses such as China and Japan.  And the endless conflicts in the Middle East could erupt into a major regional war at just about any time.  We live in a world that is becoming increasingly unstable, and people need to understand that the period of relative stability that we are enjoying right now is extremely vulnerable and will not last long.

The following are 18 signs that the global economic crisis is accelerating as we enter the last half of 2014…

#1 The Bank for International Settlements has issued a new report which warns that “dangerous new asset bubbles” are forming which could potentially lead to another major financial crisis.  Do the central bankers know something that we don’t, or are they just trying to place the blame on someone else for the giant mess that they have created?

#2 Argentina has missed a $539 million debt payment and is on the verge of its second major debt default in 13 years.

#3 Bulgaria is desperately trying to calm down a massive run on the banks that threatens of spiral out of control.

#4 Last month, household loans in the eurozone declined at the fastest rate ever recorded.  Why are European banks holding on to their money so tightly right now?

#5 The number of unemployed jobseekers in France has just soared to another brand new record high. (more…)

MRI’s of Succesful Traders

  
  Education
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I’ve seen this study making the rounds on several websites now as a type of neuroeconomic confirmation of Buffetological principles…

Perhaps procedure might be slightly useful as a means of seeing physical brain improvement by training– such as that found through meditative practices.

“Traders who buy more aggressively based on NAcc signals earn less. High-earning traders have early warning signals in the anterior insular cortex before prices reach a peak, and sell coincidently with that signal, precipitating the crash. These experiments could help understand other cases in which human groups badly miscompute the value of actions or events.”

“Neuroeconomists Confirm Warren Buffet’s Wisdom”:

“Seeing what’s going on in people’s brains when they are trading suggests that Buffett was right on target,” says Colin Camerer, the Robert Kirby Professor of Behavioral Economics at Caltech.

That is because in their experimental markets, Camerer and his colleagues found two distinct types of activity in the brains of participants—one that made a small fraction of participants nervous and prompted them to sell their experimental shares even as prices were on the rise, and another that was much more common and made traders behave in a greedy way, buying aggressively during the bubble and even after the peak. The lucky few who received the early warning signal got out of the market early, ultimately causing the bubble to burst, and earned the most money. The others displayed what former Federal Reserve chairman Alan Greenspan called “irrational exuberance” and lost their proverbial shirts.

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