Bubbles and Manias

Source: Jean-Paul Rodrigue, Dept. of Global Studies & Geography, Hofstra University


Josh Brown reminded us yesterday of this terrific chart from Jean-Paul Rodrigue, a professor in the department of global studies and geography Department at Hofstra University.

Of course, the key question is: Where are we on the chart? My view is that we’re through the “Awareness” phase as many of the bears have already thrown in the towel (Jeremy Grantham is the latest one).

Continues here


Category: Cycles, Markets, Psychology

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23 Responses to “Where Are We in the Bubble and Mania Cycle?”

  1. Ramstone says:

    Media Attention (read: Front Page IPOs) feels about right, with the new paradigm probably being something along the lines of “No earnings growth, no problem!”

  2. fgoodwin says:

    new paradigm : cash offers neg return, history of policy normalization is wobble, then market shakes it off and goes higher (think 1994, 2004), investors according to BAML survey are bearish (contrarian it is thought), what begins in EM stays in EM, China command control economy will contain credit deleveraging, so it won’t be chaotic, uncertainty risks are lower now blah, blah, blah

  3. Concerned Neighbour says:

    Being in the “awareness” phase would imply massive gains to come. That would prove quite amusing given we’d be starting from historically nosebleed levels.

    My own, admittedly quite unpopular, is that this kind of historical analysis is largely irrelevant today. Never before have we witnessed entities with literally infinite resources distort markets to this extent. The “markets” will go where they want them to go, bubble or no. It puts those few who still care an iota about fundamentals into a difficult position: throw caution to the wind on the assumption central banks will prop it up forever and ever, or earn peanuts in fixed income.

    And some wonder why this is the most hated rally in history.

  4. Rob Dawg says:

    I am enthusiastic that the recent media attention to the recent bull trap has generated an awareness phase where smart money investors are taking their institutional accolades and leveraged that lack of despair into a new paradigm transcending greed and eschewing delusion creating a permanently high plateau from which we either despair or transcend.

    Newsletter subscriptions available.

  5. cfischer says:

    WhatsApp for $19 billion, FB up 350%, TSLA up 800%, NFLX up 700%, 3D Printing stocks, Marijuana Penny stocks, bears throwing in the towel – I think we’re around the Greed zone.

  6. Willy2 says:

    Two prominent bears have thrown in the towel. Grantham & Hugh Hendry. But I consider this to be a sign the top is nearing. I’ve never been this bearish in my entire life. And there’re a number of VERY good reasons to be EXTREMELY bearish.

    • Willy2 says:

      The chart assumes the public still needs to be “herd” into stocks. Nope. The general public has poured ~ 1.4 trillion into bond(s)-funds. That’s NOW the part of the market that’s EXTREMELY overvalued. Some people say the people will wake up and will start pouring money into stocks but I don’t buy that for one minute.

      The Q-ratio for stocks in 2000 was at an eye popping ~ 1.60. Currently the Q ratio is at ~1.08. And that’s one of the reasons why some people (Grantham ???) think stocks still have a upside potential. I don’t. The Q ratio was in 2008 at ~ 0.8 (lower than today) and the stockmarket still crashed.

    • san_fran_sam says:

      I think Grantham is still a bear. but is being careful playing in this sandbox. Don’t fight the Fed. Don’t fight the tape.

      i thought i read somewhere that he is “only” 50% in the stock market.

      Hussman is still a bear.

      You can play this game two ways. be all in and try to get out the door early. time the black swan event that crashes this market.

      Or you can stay in. and just not add any more money to the market. sure you may lose 30-50% in the next crash. but you will have cash on hand to buy at or near the bottom.

  7. Marko U says:

    I say we are exactly where it says “PUBLIC” in between enthusiasm, and greed… I know the word “PUBLIC” is not there to signify anything, but I belive its placement its perfect! And JOE AVERAGE is just about putting his savings on the line right about now.

    • san_fran_sam says:

      It says “Public” for a very good reason. it is because that is when the average Joe starts to put serious money into the market.

      the Smart Money got in in 2009. the institutional money in 2010. and the public later.

      i would say we are somewhere around enthusiam.

  8. rd says:

    Closer to greed than enthusiasm. High margin debt, more and more articles about “can’t lose” stocks etc. We are starting to see some big M&A buys for interesting capitalizations.

    The desire to re-write the valuation rules is clearly out there and that drum-beat is getting louder like it did in 1999, so delusion and “new paradigm” may be closer than we think.

    It seems to me that 2013 was when the stock market blimp became un-moored and started to drift away from fundamentals. I think the big question is whether we still have a 1999 in front of us or if we are in late 2007 for potential advances. With ZIRP, TBTF, and QE still in play, almost anything can happen. I don’t think there is much room for negative earnings surprises.

  9. Derektheunder says:

    Yes, definitely through the Awareness stage and well into the latter portions of mania, IMO.

    At least, I have to invest in accordance with that opinion to sleep at night right now.

  10. ashpelham2 says:

    All we are really missing right now to send this thing down, maybe 12-20%, would be a black swan event that rocks the US. What I’m talking about is more than a terrorist attack or weird election results, but something that is systemic. The reason I can’t think of one is because it’s unknown to us at this time. I’m trying to think of what the single largest risk to current market valuations is, and the only thing I can come up with is sudden spikes in interest rates. To me, this would not only crush current bond valuations but would negatively impact corporate earnings and big ticket spending by the consumer, thus rattling stock prices.

    Not even like last year when the 10 yr jumped 100 bps. That wasn’t sustained. I mean a 6-12 month period where rates are going crazy up, like 100mps per MONTH. What scenario would enable that?

  11. howardoark says:

    If you take January 2009 as our last visit to despair land and you use the trend from 1982 to 1995 as the baseline (with a not shabby at all annual return of 12% not including dividends) and Professor Rodrigue’s chart can be scaled (boom is 4x the despair deficit to the baseline above the baseline), then we should have crashed around the time the S&P500 reached 1600. If you use 1950 to 1985 as the baseline (with a not too shabby 6.3% annual return not including dividends) we will all die poor, so lets not go there.

  12. wally says:

    Media attention.
    The stock market is not yet seen by the public as “the” place to make $$$.

  13. Singmaster says:

    Interesting reading the comments on this site vs Bloomberg.

  14. LeftCoastIndependent says:

    Might be time for a bubble bath.

  15. coffeeteacoffee says:

    I thought a bubble was supposed to be an anomaly, but these days people seem to assume that all stock market activity is some stage of bubble. (?) That shows a level of caution that does not seem conducive to a bubble.

  16. Moopheus says:

    Hmmm, well, I don’t know about the stock market, but the Boston real estate market is somewhere between “delusion” and “new paradigm!”. It’s getting quite frothy.

    Coffeeteacoffee: since “pump and dump” has been the basic MO of the market for the last 30 years, there doesn’t seem to be any evidence that that has changed, it’s a reasonable assumption.

    • I am curious as to your basis for that statement about Boston

      • Moopheus says:

        Not so much a numbers thing–prices here haven’t quite risen again to the highs of the Great Bubble–but more of a general attitude that seems to be present in the market. Which is to say, partly because inventory-for-sale is still very low, we’re seeing bidding wars and very fast sales, at least in desirable areas. It’s definitely strongly localized–people who moved further out from the city in the past are trying to move closer in, nearer to work and public transit. Also, rent rises are starting to level off. I figure if prices are going up but rents aren’t, there’s some market imbalance.

  17. DeDude says:

    I just got a junk-email peddling BitCoin. Time to sell folks (not that I have any).

  18. Nordlys says:

    We’re somewhere in the Public area on the chart. Maybe. Tough.

    Went to cash in the Spring of 2007. Back in almost three years later. Now I’m three (3) years from retirement (pilot, cannot fly past 65), so this becomes very important for the wife and I. Am thinking more and more about going to cash, but that little voice, greed, keeps saying…”hold on just a little longer”.

    Portfolio doing really well, even more important to try to sit out a potentially major pullback. I keep thinking we’re not Japan…and the Nikkei was around 39000 in 1989/1990…nagging questions.

    Thanks for the warnings back before the Great Recession, Barry!