VIDEO: Grant Williams of Vulpes Hedge Fund Managers explaining bubbles
Excellent explanation about market bubbles. Grant explains the life cycle of bubbles and why it is of relevance today because one major bubble (government bonds) is about to burst whilst another (Gold) is about to enter its mania stage and takeoff.
Grant explains the classic four stages of bubbles, those being;
1. 'Stealth phase' whereby the asset underlying the forthcoming bubble goes unnoticed by the general public, usually associated with public apathy and/or stupidity. During the 'stealth phase' the asset invariably trades at its lowest fundamental value. Only the smart money notices this phase.
2. 'Awareness Phase' is when the asset starts to get noticed and talked about in fringe media. The asset then starts rise above its fundamental value. This stage usually experiences much volatility and many investors get shaken out during the process, jumping out way too early at what they think is the top. This phase is the 'basing'
stage of a bull market and can go on for over a decade.
3. 'Mania Phase' is when the price of the asset takes off expotentially. It now gets talked about in mainstream media and thousands of new so called experts appear on the scene. The price increase now becomes the hockey stick of an expotential curve as every man and his dog jumps onto the bandwagon. Fundamentals underlying the asset are completely forgotten about as the general public gets caught up in the greed and fear of "missing out". Price increase becomes spectacular. Remember, the last 50% gain in price of an asset nearly always occurs in the last 10% of time in a bull market during the mania phase.
4. 'Blow Off Phase'. The hangover. The mania runs out of puff as the pool of idiots who buy near the top dries up and the price collapses, but not before a couple of rebounds as the last few credulous idiots jump in at what they think is their last chance to buy into the market at what they perceive is a reasonable price.
Entertaining and well worth the 30 minutes watching it.