Bubble cycle-- Momentum, greed, delusion, despair
By Neil Behrmann
February 2008 :- The picture tells all:-
The bubble chart of Hofstra University's Jean-Paul Rodrigue, illustrates the behaviour and emotions of market participants during boom and bust cycles. Equity investors are currently worried, but are still bargain hunting ahead of a bull trap. Commodity markets are in the delusion phase. UK and European real estate markets are in denial, but fear reigns in the US. Mortgage and other credit derivatives are already in "capitulation phase; junk bonds have reached fear range. Investors in high grade corporate bonds are also nervous.
This is a systemic debt deflation crisis that hasn't been seen for many decades following extraordinary borrowing, leverage and derivatives expansion in the past few years. The credit crunch could well be the same as the early seventies and early eighties, but so far the consensus neither believes it, nor wants to accept it.
The warning signs were there in the summer of 2007 when two Bear Stearns hedge funds collapsed and the ball began rolling down the hill. See sovereign bonds .
Delusion of Commodity Bulls
Pension funds and other investors suckered into this bubble can draw their own conclusions from the following chart. CRB Commodity index reaches North Pole, while Baltic freight rates head south. If there were a boom in global commodities demand, shipments and thus freight rates would rise. This is a red light, showing that prices are soaring on speculative hot air.
Source:- InvestmentTools.com
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