Forward
We always heard someone talking about, there is a bubble coming towards us, have you wonder what actually is a bubble? How’s a bubble really affects us? What will happen to our future if a bubble pops? I will always teach you how others determine an existent of a bubble and what contingency plan they will prepare for it.
How to define a bubble?
So the first step, what actually a bubble is? we could ask lots of people, most of the people could not even clearly speak out what is it.
I recommend my reader who doesn’t really understand what is a bubble is, have a read on the Tulip Mania incident would be helpful.
Click here to check out the real story of Tulip Mania.
What is a bubble?
An economic bubble is an economic cycle that presents 4 phases, which are the stealth phase, awareness phase, mania phase, and blow-off phase.
It has several hallmarks that for identifications, especially easier to distinguish in speedy increase and decrease in values.
4 Types of Asset bubbles
The fundamental analysis is being underperformed but outperforms in stock performance.
- Stock Market Bubble
- Referring to Stocks, ETF, REITs, funds, etc
- Asset Market Bubble
- Referring to real estate market, cryptocurrency market, forex market, etc.
- Credit Bubble
- Referring to bonds, loans, mortgage, ABS, MBS, etc.
- Commodity Bubble
- Referring to gold, silver, oil, crops, material, etc.
The Perspective of Brilliant minds
Ray Dalio
Ray Dalio is a famously known hedge fund manager and the chairman of Bridgewater Associates, managing the world’s largest hedge fund for over 46 years. He is experienced and involved in the financial sector, often comment regarding the economy.
The 6 signs for identifications and Comparisons
- Prices Are High Relative To Traditional Measures
This graph shows the price gauge percentile for the equities in the United States. There are two points circled (1929 crash & 2000 crash), which at that time occurred market crash, met the level of 100% price gauge percentile.
- Prices Are Discounting Unsustainable conditions
This graph shows the earning growth rate in the United States stock market.
- New Buyers Have Entered The Market
- There Is Broad Bullish Sentiment
- Purchases are being financed by high leverage
- Buyers/ Business have made extended forward purchases
Warren Buffett
Warren Buffett is the most eminent investor and the chairman of Berkshire Hathaway, focusing on value investing, involving multiple sectors.
The Buffett Indicator
For this indicator, I have written an article. For details, please click the link below.
Click here for further details on Buffett Indicator.
Other Indicator
CAPE Ratio- Cyclically Adjusted Price Earnings Ratio
CAPR Ratio – Cyclically Adjusted Price Rent Ratio
Movie Recommendation
This 2 movies are interesting for the people who really wants to find out how the 2008-2009 financial crisis, it has detaily illustrate before the pre-market crash and post-market crash. It shows the insanity of different aspects who are inside or outside the system and how the government clean up the mess for wall street.
The Big Short (2015) – Pre-Market Crash
Too Big to Fail (2011) – Post-Market Crash
Materials
About Post Author
