Crash crash crash part 2!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!

Cleaver

Graham_Devon wrote: »

Does it define "bubble" then?

The words do. And the fact that it goes up steeply, then drops does, of course, show a bubble.

But the graph / chart is as similar or as unlike any bubble you want to relate it to, surely?

Graham_Devon

Cleaver wrote: »

The words do. And the fact that it goes up steeply, then drops does, of course, show a bubble.

But the graph / chart is as similar or as unlike any bubble you want to relate it to, surely?

The chart shows its own definition of a bubble....which includes a mini boom followed by a bust, and then the massive surge up to the point we had in 2007.

What the chart is not doing, is starting from 1996 and saying "heres the bottom, heres the top, heres the pop".

What the chart defines as a bubble, is different to what most of us call a bubble (a single event from bottom, to bottom) which is I think what Julie is refering to, a singular event from bottom to bottom.

Cleaver

Graham_Devon wrote: »

The chart shows its own definition of a bubble....which includes a mini boom followed by a bust, and then the massive surge up to the point we had in 2007.

What the chart is not doing, is starting from 1996 and saying "heres the bottom, heres the top, heres the pop".

What the chart defines as a bubble, is different to what most of us call a bubble (a single event from bottom, to bottom) which is I think what Julie is refering to, a singular event from bottom to bottom.

I've highlighted in bold and underlined the point at which I lost the will to live. That's not a comment on your post Graham, more the endless discussion on this damn graph.

It's a rather nifty and clever way to show the psychology of people during the rally and fall of any asset. I like it. But trying to work out 'what stage' or 'where we are' on it is pointless, as it's a generic method of making a point, rather than a blueprint of what's happening next with everyone using it as a basis of trying to work out where property prices go next in 2009.

Graham_Devon

Cleaver wrote: »

I've highlighted in bold and underlined the point at which I lost the will to live. That's not a comment on your post Graham, more the endless discussion on this damn graph.

It's a rather nifty and clever way to show the psychology of people during the rally and fall of any asset. I like it. But trying to work out 'what stage' or 'where we are' on it is pointless, as it's a generic method of making a point, rather than a blueprint of what's happening next with everyone using it as a basis of trying to work out where property prices go next in 2009.

I agree, it's just one persons theory. Many blow it out of the water. But what I do find interesting is proving it wrong because of no timeframe and proving it wrong by applying a timeframe.

It either has no timeframe, and is just a picture (and one which correlates extremely well with a point in time), or, it needs to be applied to a timeframe....but as it gives no timeframe, it's very hard to apply it to one, and you would always be able to prove it wrong by picking your own timeframe to plot it against.

Whether right or wrong, it doesnt half cause some arguments....so theres got to be something to it.

It will be interesting to see how it pans out plotted on the timeframe in the OP.

baileysbattlebus

julieq wrote: »

Graham, the chart shows one bubble. The big clue is in the title: "Main stages in a bubble". It's being superimposed onto 36 years of housing data including many ups and downs, which has had long term trend information removed, and which happens to be vaguely the same shape because it includes a long term exponential increase and a dip at the end.

It's not correlated. End of, really.

You are right, chart is one bubble - and is supposed to be able to be applied to any bubble. Here are the last 3 US bubbles - they were more or less back to back, the Tech/Stock bubble (Nasdaq) - the housing bubble (Toll Brothers house builders were used) and the commodities bubble (Baltic Dry Index)- with timelines. They each follow roughly the shape of the chart. Obviously the length of a bubble and shape will all vary, but the fundamentals are the same. The chart is an example of what happens in a bubble and the different phases - each bubble will have a different timeline - peak etc.










From the man who did the research and came up with the chart.

The different phases in a bubble are backed up by 500 years of economic history. Each time the situation is obviously different, but there are always a lot of similarities. The situation applies pretty well to the current real estate bubble, which is rapidly unfolding as these lines are written. Simplistically four phases can be identified:
1) Stealth. Those who understand the new fundamentals realize an emerging opportunity for substantial future appreciation, but at a substantial risk since their assumptions are so far unproven. So the "smart money" gets in, often quietly and cautiously. This category of investor tends to have better access to information and a higher capacity to understand it. Prices gradually increase, but often completely unnoticed by the general population. Larger and larger positions are established as the smart money start to better understand that the fundamentals are well grounded and that this asset is likely to experience significant future valuations.
2) Awareness. Many investors start to realize the momentum, bringing additional money in and pushing prices higher. There can be a short-lived sell off phase taking place as a few investors cash in their first profits (there could also be several sell off phases, each beginning at an higher level than the previous one). The smart money takes this opportunity to reinforce its existing positions. In the later stages of this phase the media starts to notice and those getting in are increasingly "unsophisticated".
3) Mania. Everyone is noticing that prices are going up and the public jumps in for this "investment opportunity of a lifetime". The expectation of future appreciation becomes a "no brainer" and a linear inference mentality sets in; future prices are a "guaranteed" extrapolation of past price appreciation, which of course goes against any conventional wisdom. This phase is however not about logic. Floods of money come in creating even greater expectations and pushing prices to stratospheric levels. The higher the price, the more investments pour in. Fairly unnoticed from the general public caught in this new frenzy, the smart money as well as many institutional investors are quietly pulling out and selling their assets to eager future bag holders. Unbiased opinion about the fundamentals becomes increasingly difficult to find as many players are heavily invested and have every interest to keep the appreciation - "the game" - going. The market gradually becomes more exuberant as "paper fortunes" are made and greed sets in. Everyone tries to jump in and new investors have absolutely no understanding of the market, its dynamic and fundamentals. Prices are simply bid up with all financial means possible, particularly leverage and debt. If the bubble is linked with lax sources of credit, then it will endure far longer than many observers would expect. At some point statements are made about entirely new fundamentals implying that a "permanent high plateau" has been reached to justify future price increases; the bubble is about to collapse.
4) Blow-off. A moment of epiphany (a trigger) arrives and everyone roughly at the same time realize that the situation has changed (like the Road Runner Coyote realizing he is about to fall after walking on thin air for a few seconds). Confidence and expectations encounter a paradigm shift, call it a reality check, not without a phase of denial where many try to reassure the public that this is just a temporary setback and that anyone saying otherwise does not know what he is talking about. Some are fooled, but not for long. Like a directionless herd many try to unload their assets to a greater fool, but takers are few; everyone is expecting further price declines. The house of cards collapses under its own weight and late comers (commonly the general public) are left to hold the bag while the smart money has pulled out a long time ago. Prices plummet at a rate much faster than the one that inflated the bubble. Many over-leveraged bag holders go bankrupt, triggering additional waves of sales. There is even the possibility that the valuation undershoots the long term mean, implying a significant buying opportunity. However, the general public at this point considers this sector as "the worst possible investment one can make in his life". This is the time when the smart money starts acquiring assets at bargain bottom prices.

The Nationwide chart shows 4 bubbles - one in the 1970's, (small) one in the early 1980's, (small) one in the late 1980's (bigger) and the current huge one. You need to look at all of the bubbles in the Nationwide chart individually.

I think people are confused because the bubble chart almost mirrors the Nationwide chart - but that is coincidental.

I remember the previous thread and took part in it - posting similar stuff to now but gave up in the end. It was like banging your head off a wall.

With government intervention and the BOE/ECB/FED intervention are we doomed to bubble economies?

Edit: Add Nationwide chart

Heyman_2

Thats it. I'm going to blow my brains out and attach a copy of this graph to the suicide note.

Really2

Heyman wrote: »

Thats it. I'm going to blow my brains out and attach a copy of this graph to the suicide note.

Well the graph is based on the greiving process so some may find out whit it actually means. (PS don't do it)

baileysbattlebus

Graham_Devon wrote: »

I agree, it's just one persons theory. Many blow it out of the water. But what I do find interesting is proving it wrong because of no timeframe and proving it wrong by applying a timeframe.

It either has no timeframe, and is just a picture (and one which correlates extremely well with a point in time), or, it needs to be applied to a timeframe....but as it gives no timeframe, it's very hard to apply it to one, and you would always be able to prove it wrong by picking your own timeframe to plot it against.

Whether right or wrong, it doesnt half cause some arguments....so theres got to be something to it.

It will be interesting to see how it pans out plotted on the timeframe in the OP.

Bubbles all have different time frames, peaks and troughs - each bubble is individual. Some bubbles are over in a year, some will last several years - but the overall picture at the end would be similar. The chart is not trying to tell you how long a bubble will last - how could it? How long is a piece of string. It is just outlining the different phases in a bubble.

What the chart is saying that generally each bubble follows a similar trend or has a similar profile or has similar characeristics if you like, not necessarily exactly the same.

You can see how it would look on the Nationwide graph if you take the years from 2000 to now (the current bubble). To me that has a pretty similar profile to the chart.



This is the Nationwide chart I meant

Cleaver

Heyman wrote: »

Thats it. I'm going to blow my brains out and attach a copy of this graph to the suicide note.

Classic 'dispair' phase.

julieq

so we start with:

Graham_Devon wrote:

The chart just shows two bubbles, not one. Exactly the same as what the graph of house prices over 30+ years shows. Yet you are comparing it to one.

and then modify to:

Graham_Devon wrote: »

The chart shows its own definition of a bubble....which includes a mini boom followed by a bust, and then the massive surge up to the point we had in 2007.

...

What the chart defines as a bubble, is different to what most of us call a bubble (a single event from bottom, to bottom) which is I think what Julie is refering to, a singular event from bottom to bottom.

The chart defines what it is doing as looking at one bubble. Unless we're claiming now that we have bubbles within bubbles.