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Psychology Of The Bubble

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Great graph allied to Gartner hype cycle and, no doubt, numerous similar charts - we could use this as a type of spot the ball or even pin the tail on the donkey game - main text in the blog here but in particular I like the graph:

bubble_psychology.jpg

post-9256-1182868859_thumb.jpg

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I like this sentence:

Of course when everyone knows prices are going to drop, and everyone is trying to sell, there are no buyers. This puts prices into free-fall until buyers are ready to buy again.

IMHO this is the one factor the bulls cannot understand and is the reason why when everyone realises that prices are falling they will crash hard and fast

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Guest mattsta1964
Great graph allied to Gartner hype cycle and, no doubt, numerous similar charts - we could use this as a type of spot the ball or even pin the tail on the donkey game - main text in the blog here but in particular I like the graph:

bubble_psychology.jpg

Great graph

How about adding some dates to it to simulate HPI since 1995

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Guest Winnie

I think we reached the bull trap in August 2005 and the BoE followed Gordon's instructions, cut rates and took us straight back to "Enthusiasm"......

Right now, let's hope we are about half way down the slide from "New Paradigm" to Denial......

The speed of internet and news media in stardate 2007 will accelerate the plunge to despair like never before.....

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This is a fantastic chart..it applies to pretty much every bubble in history...and is easily transposed onto different assets.

so we have.....SIX different asset classes and their places in the respective chart

1)PROPERTY/BONDS/stocks(US/UK RETAIL).....IN BULL-TRAP MODE...ABOUT TO START PHASE 2(MAJOR DROP)

2)CHINA...IN MEDIA HYPE/MANIA MODE....THANKS FOR WARNING US MR GREENSPAN.

3)GOLD....IN THE BEAR TRAP,HENCE THE PULLBACK FROM $750 TO $640ish...UPWARD TRAJECTORY TO RESUME SOON.

4)GERMANY/JAPAN.....REVERTING TO THE MEAN FROM A PERIOD OF EXHAUSTION.

getting the timing spot on is difficult,as you always have numpties who are behind the game,that need to be coerced into a new frame of mind after extreme greed or fear.

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I think we are still in the 'delusion' stage though.

I do as well. Maybe 1cm or so from the peak on that graph.

Even though there is lots of good news recently in terms of a HPC I still think there are a fair few idiots left.

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I think we reached the bull trap in August 2005 and the BoE followed Gordon's instructions, cut rates and took us straight back to "Enthusiasm"......

Right now, let's hope we are about half way down the slide from "New Paradigm" to Denial......

The speed of internet and news media in stardate 2007 will accelerate the plunge to despair like never before.....

very good point. in 1990 the only reliable source of news was word of mouth. now the internet, and sites like this, do a hell of a job to spread the message around.

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I like the graph too.

I think we are still in the 'delusion' stage though.

At what point would the 'smart money' have got out?

I think we are in the new paradigm phase actually.

The proof : the big Times article on "Houses prices to cost 10x earnings"

It is starting to be accepted as such.

We are at tilting point.

What I do not agree with is probably the timing. There could be 2 years before the first shake outs. So 2009.

And serious drops by 2010 I'll say.

My girlfriend will never wait for that long so I guess I'm condemned to be on eof the last suckers :(

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IMHO this is the one factor the bulls cannot understand and is the reason why when everyone realises that prices are falling they will crash hard and fast

I thought it was accepted that it took 7 years from peak to trough on the last downturn? And we havent even hit a peak yet!

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I thought it was accepted that it took 7 years from peak to trough on the last downturn? And we havent even hit a peak yet!

Looking at the graph on the home page it took about 2.5 years to get from peak to virtually trough give or take the few % which is pretty irrelivent.

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Guest DissipatedYouthIsValuable
I think we are in the new paradigm phase actually.

The proof : the big Times article on "Houses prices to cost 10x earnings"

It is starting to be accepted as such.

We are at tilting point.

What I do not agree with is probably the timing. There could be 2 years before the first shake outs. So 2009.

And serious drops by 2010 I'll say.

My girlfriend will never wait for that long so I guess I'm condemned to be on eof the last suckers :(

Get another girlfriend.

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I thought it was accepted that it took 7 years from peak to trough on the last downturn? And we havent even hit a peak yet!

A good point, though I think there are many on this site who will buy when the market is still dropping (therefore within those 7 years), since the crash will have the greatest downward trajectory in the first few years.

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Or could it be we are only HALVE way through the bubble :o

I wouldnt rule it out, although there is no affordability left out there the Bank of Mum & Dad and B2L MEW might just keep this baby rollin.

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Guest vicmac64
I think we are in the new paradigm phase actually.

The proof : the big Times article on "Houses prices to cost 10x earnings"

It is starting to be accepted as such.

We are at tilting point.

What I do not agree with is probably the timing. There could be 2 years before the first shake outs. So 2009.

And serious drops by 2010 I'll say.

My girlfriend will never wait for that long so I guess I'm condemned to be on eof the last suckers :(

No - our economy is a deck of cards - Stock Markets, and Housing will fall - and will fall faster - personal debt has doubled in the past 7 years - the chickens are about to come home to roost!!!

I see virtually NO BULLs - BEARS are coming out of the woods from every direction - yes initially the rush to the exits will be slow - but rest assured by Christmas our economy will look very differed to the one we see now!!!

Unparalled greed, lending and risk enthusiasm = unparalled crash - aka 1929

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No - our economy is a deck of cards - Stock Markets, and Housing will fall - and will fall faster - personal debt has doubled in the past 7 years - the chickens are about to come home to roost!!!

I see virtually NO BULLs - BEARS are coming out of the woods from every direction - yes initially the rush to the exits will be slow - but rest assured by Christmas our economy will look very differed to the one we see now!!!

Unparalled greed, lending and risk enthusiasm = unparalled crash - aka 1929

Then, what is the excitement ?

This Super crash means a lot of people will lose their jobs, pensions will evaporate, banks will not lend any money .

So houses prices at the current £200,000 level will fall to £100,000

Earnings will fall from £25,000 to £20,000

So the multiple would contract from 8x to 5x

But banks will only lend 2x income by the time.

SO with your £20,000 you won't be able to buy the £100,000 so the HPC will have no favourable impact for anybody but those with a chunky deposit in waiting and stable jobs.

It is not a nice picture

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Then, what is the excitement ?

This Super crash means a lot of people will lose their jobs, pensions will evaporate, banks will not lend any money .

So houses prices at the current £200,000 level will fall to £100,000

Earnings will fall from £25,000 to £20,000

So the multiple would contract from 8x to 5x

But banks will only lend 2x income by the time.

SO with your £20,000 you won't be able to buy the £100,000 so the HPC will have no favourable impact for anybody but those with a chunky deposit in waiting and stable jobs.

It is not a nice picture

Surely in that scenario, house prices will keep dropping until enough people can buy them and then the next bubble will begin.

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Guest grumpy-old-man

the people that think we are in the "delusional" stage are delusional sellers I would imagine. ;)

I think we are just sliding down the denial stage, about half way. Half way being about 6 months, the total denial stage being 1 year imo.

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