One year after the world's brush with economic catastrophe, there's a lot to learn from bubbles that caused the financial chaos. And what does this tell us of what's next on the radar?
Why do bubbles form and why do markets crash? Both are intriguing questions and both are the result of the inefficiency of human psychology. Put a million humans in a room with blinking lights, ever-changing prices and money on the line and you have a recipe for mass hysteria. According to Charles Kindleberger, the US economic historian, the first stage of a bubble is an economic event that justifies some increase in asset prices. In the housing bubble, that is (now) easy enough to see in the use of securitisation. By apparently spreading risk, it lowered borrowing costs and thereby increased the pool of would-be housebuyers. In the case of dot-coms, railways and canals, the event was exciting new technology. Even tulips were new to Europe when the Dutch suffered their mania. In this equity market rally, the event could be the growing relief from March onwards that complete financial Armageddon had in fact been avoided. This would justify some re-rating of business expectations from the extreme lows seen in the wake of the collapse of Lehman Brothers. Here are a few bubbles-in-the-making one should be on the watch for. . . * http://business.rediff.com/slide-show/2009/oct/08/slide-show-1-10-future-bubbles-in-the-making.htm * --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups ""GLOBAL SPECULATORS"" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [email protected] For more options, visit this group at http://groups.google.com/group/globalspeculators?hl=en -~----------~----~----~----~------~----~------~--~---
