December 25, 2007

I've just finished this book - "Bubbles and How to Survive Them", and it's joined Manias, Panics and Crashes as one of my all-time favorites

The author John P. Calverley does a great job talking about what makes a bubble, what to look for, how leaders react, what to expect from the central banks, what the impact is on inflation and the currency, and how to preserve your wealth when the masses go mad and then recover their sanity one by one.

Some of my favorite quotes:

"At some stage the bubble reaches a phase variously called euphoria or mania, where speculation mounts on top of genuine investment and expectations for potential returns reach wild heights. Strong market performance is extrapolated endlessly forward and any consideration of fundamental valuation criteria is swept aside"


"The worst point of the Depression came in March 1933, when the wave of bank failures led to a general panic and the closure of all banks. The Dow Jones index actually bottomed before then with the close on July 8th, 1932 at 41.88, a drop of 90 percent from its peak."


"Governments have even less interest in drawing attention to the dangers of asset bubbles. Voters generally like bubbles. Many people profit from them, though for some the gains turn out to be only on paper and disappear later... But in general it is easy to win elections during bubble periods, because people feel wealthy and the economy is doing well."


In the end the author calls for an "Asset Evaluation Committee" and a warning system for when our financial system (stocks, bonds, real estate, etc) venture into bubble territory, so at least investors are warned. I like the idea, and instead of a committee of humans, I'd recommend a computer. The fundamentals are the fundamentals, and when people are paying 8 times income for a house, it's a bubble. When stocks' P/E is 40, it's a bubble. When renting is a fraction of the cost of "owning", it's a bubble. When people are camping out to buy an asset, it's a bubble.

Give us a nice color coded warning system, instead of Greenspan's "Froth" or "Irrational Exuberance" parlance, and even the masses will get it.

I highly recommend this book for all HP'ers. You owe it to yourself. Then pick up "Crash Proof" by Peter Schiff so you know how to invest, and for god's sake read Manias, Panics and Crashes. I'm not that smart - everything I predicted came from reading that one classic book.


Anonymous said...

Just bought Manias, Panics and Crashes, and How to Survive Bubbles -- the first one in VG condition and the second one new from a used book dealer. Both of them to my door for a grand total of $15.73. Awesome.

Thanks for the heads-up Keith, and happy holidays to all.

Anonymous said...

How about if we had a color-coded "Bubble Alert"? Put it right on the cover of the Wall Street Journal. It would be more useful than those BS terror alerts used to scare the peasants. We could then extend it to a "Bubba Alert", as in when Bubba buys stocks, it's time to cash out.

Anonymous said...

The revolution will be collectivised

Anonymous said...

from the free excerpt it looks like there is a huge gold bubble..

FlyingMonkeyWarrior said...

Breaking Point Ahead For the Global Financial System in 2008
Carnage will be Global, and may start in The USA.

According to LEAP/E2020 research team, it is already a fact that after it (sic {Fed Bank}) lost control over interest rates, the US Federal Reserve has now lost two more of the attributes that characterized the post-1945 global financial system: its credibility as a proactive player capable of influencing heavy market trends, and its capacity to organize and drive global central banks altogether along its own rhythm and goals. In doing so, it has just lost the ability to steer by itself the entire global financial system, an ability it has gained after 1945.

Even though today, financial markets are mostly receptive to the loss of the first attribute [9] , our researchers estimate that it is the loss of the second attribute (and the impact on the system’s leadership) which will result in the global financial system’s break sometime in the course of next year, probably by summer, when the effects of the ongoing US recession will start being fully felt and when Asians and Europeans will decisively be compelled to impose their own priorities to the “Fed-pilot”.

(sic-There is a) growing divergences between the four main central banks (US Federal Reserve, European Central Bank, Bank of England, Swiss national Bank).

According to LEAP/E2020, these crucial trends, coming at a time when the entire magnitude of the US recession effects has not yet been reached (in Asia and the US in particular), illustrate the rapid increase of centrifugal forces which, according to our anticipations, will lead the contemporary global financial system to a break point by summer 2008.

This break point will entail numerous disastrous effects for the world’s largest financial institutions, in particular for all those who do not yet fully understand the meaning of ongoing tendencies and therefore who remain largely involved in the US dollar system currently imploding. These institutions will experience, to a much larger degree, what those who failed to anticipate the subprime crisis experienced, now being on the verge of disaster.

Meanwhile, for depositors and investors, this breaking phase will convey risks of considerable loss comparable to the two previous breaking periods (1929 and the years that followed, and 1973 and the end of the 1970s).

According to our researchers, the ongoing rupture is even more disastrous than the two previous ones due to a disproportionate importance of the financial sphere in contemporary economy.

US banks quarterly change in domestic loans (in blue) versus domestic deposits (in red) – Source FDIC - Comment: There is a historical disconnection between loans and deposits since 2006, illustrating the dangerous spiral US banks have entered

By summer 2008, it will be possible to distinguish more clearly the lines along which the global financial system will reorganise once the break point has been reached.

According to our team, it is a fact that the Europeans (the Eurozone essentially), together with Japan and China, will have to compose with Russia and oil-exporting countries in order to structure a new system.

The evolution will be painful for the US (and for all related operators) as, inevitably, the new system will no longer be organised along their interest as it was the case in the past sixty years. The next US Administration (that will be in charge from January 2009 onward) will have a task high on their agenda: to handle as well as possible this historic change, conveying new economic and financial constraints, in a context of economic recession. Europeans and Asians too will have to keep in mind this aspect if they want to avoid the break from turning into chaos.

Link for charts, full opine and References:

Anonymous said...


Just for disclosure - what is your cut from every book bought from your easy to use ad to Amazon?

Marky Mark

Anonymous said...

Keith on a related issue: I pulled this link from a Ron Paul Site. This is a sermon from a Mega Church in Columbus OH during 2003. Keep an open mind because this is a sermon everyone in the US should have heard during 2003. I can almost promise that HP’rs will watch the entire video, no matter what their faith. You may want to put this one up on the big board:

consultant said...


Merry Christmas. This is not directly related to this post, but take a look at this:

They didn't see this coming?

consultant said...


I didn't finish reading that NY Times article before I sent it to you. That is a depressing piece.

Folks are just throwing their hands up and saying it's too much.

2008, '09 and '10 are going to be some tough years.

Anonymous said...

Those sheep remind me of Animal Farm. Four legs good, two legs baaad. Home owners good, renters baaad.

Anonymous said...

"I like the idea, and instead of a committee of humans, I'd recommend a computer."

Agree with everything except the above statement. Using a computer has the same pitfalls as electronic voting....he who writes the software controls the results.

You only have to control the very top of the "pyramid" to control everything below.

Anonymous said...


So what's the next market segment to short.

First homebuilders stocks
Second banking stocks

What's the next segment to short? I wanna make some $$.


Anonymous said...

“And a CM Development employee received nearly $700,000 in mortgages while in the Virginia Beach jail on drug charges.”

Anonymous said...

there is only one answer to all of this. chase the moneychangers out of the temple and make them leave the country as well. this is the only answer to this. either you do that, or you will continually have problems.

Anonymous said...

450 sheep jump to their deaths in Turkey
ISTANBUL, Turkey (AP) — First one sheep jumped to its death. Then stunned Turkish shepherds, who had left the herd to graze while they had breakfast, watched as nearly 1,500 others followed, each leaping off the same cliff, Turkish media reported.
In the end, 450 dead animals lay on top of one another in a billowy white pile, the Aksam newspaper said. Those who jumped later were saved as the pile got higher and the fall more cushioned, Aksam reported.

"There's nothing we can do. They're all wasted," Nevzat Bayhan, a member of one of 26 families whose sheep were grazing together in the herd, was quoted as saying by Aksam.

The estimated loss to families in the town of Gevas, located in Van province in eastern Turkey, tops $100,000, a significant amount of money in a country where average GDP per head is around $2,700.

"Every family had an average of 20 sheep," Aksam quoted another villager, Abdullah Hazar as saying. "But now only a few families have sheep left. It's going to be hard for us."

Copyright 2005 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Anonymous said...

My buddy's wife announced at a Christmas party that she quit her management job at Proctor & Gamble to become a Realtor. She's always dreamed of working for herself.

UHHHHHH where have you been? Under a rock somewhere?

Anonymous said...

8x? No wonder you're so bitter - you have no income. What is it when you're at 3x and a kid, and your income is about to explode in 2 1/2 years? :P

Beyond that, got rid of my gas guzzling american POS, so just dropped our expenses another $100 month (based on $3/gal) in gas, wheeee!

Mammoth said...

So, is GOLD the next bubble?

If so, there may still be some time to get in now and ride it up a bit.


Anonymous said...

A question:
Is there a Bubble when in a particular european capital, a 3 room apartment (used, mostly over 20/30 years of age) costs about 20 years national median income, there´s a glut of housing for sale, unemployment and job security are scarce and families are overburden with debt, and still, prices wont come down?
BTW, this city has now the same population it had in 1930, losing 20% over the past 10 years.
And still prices wont come down. Also, there is over 100 thousand vacant properties.

I´ve asked economists about it and they can´t just explain it how can the fundamentals and offer and demand be ignored for so long...

Any ideas?

Anonymous said...


Anonymous said...

May I also reccomend "black swan" by the same author as "fooled by randomness" gives you a complete account on how advanced math just cant figure out risk, thus the reason why we have all these blow-ups when everyone asks "why didnt all these PHDs see the risk?" A top read among the hedge fund community. check it out.

Anonymous said...




Someone should COPY THIS SPEECH in a "non-christian format" for the masses, but nevertheless, its AWESOME!

I can almost promise that HP’rs will watch the entire video, no matter what their faith. You may want to put this one up on the big board:

Use this cut and paste link:

Anonymous said...

Intersting Time line of the US great depression:

Annaul Unemployment rates ('29-'39)

1929 3.2%
1930 8.7
1931 15.9
1932 23.6
1933 24.9
1934 21.7
1935 20.1
1936 16.9
1937 14.3
1938 19.0
1939 17.2

Seriously, could we see numbers like these again? For almost 10years???