Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Comparing Bubbles: Will History Repeat Itself?


Decoding patterns in homebuilders, oil and more.

You what they say: The more things change, the more they stay the same.

I like to point out "bubble comparison charts" a lot because, in my opinion, they show that human beings are an emotional bunch. I like to call the parabolic moves upwards in stocks and indices, "1-800-GET-ME-IN."

Whether it's tulip bulbs in the 1700's or the NASDAQ in the late 1990's, the ugly emotion of greed sets in once a really big move in the price of a security gets going. This always strikes me as odd because when I think about people buying truly important assets like a car or a house, they are always looking for a "deal," but when it comes to the market, for many there is just something about missing out on the big move.

Below I've updated a few of my bubble comparison charts from the past to drive home the point that, in my opinion, greed, followed by fear, is alive and well on Wall Street and, in fact, most corners of the world.

Bubble Comparison 1-Japan/NASDAQ/Homebuilders/China

Click to enlarge

Bubble Comparison 2-NASDAQ/Potash (POT)

Click to enlarge

Bubble Comparison 3-NASDAQ/Homebuilders/Inflation Adjusted Oil

Click to enlarge

Of Coils and Crashes

In my opinion, the market's been consolidating, or "coiling," for the past month or so. Usually, the longer the consolidation, particularly when it occurs underneath resistance, the more "energy" is stored up in the coil. So I decided to go back and take a look at previous periods of consolidation that lasted this long and what the aftermath was. The examples I found were 1987 and 2001, neither of which had a particularly happy ending. See the charts below. Please note that I am not 'calling' for a crash, just pointing out some obvious similarities.

Coil #1-1987

Click to enlarge

Coil #2-2001

Click to enlarge


Click to enlarge

As Mark Twain said, "History does not repeat itself, but it does rhyme." The coil/consolidation is built. We just have to wait and see if we get the similar flush.

The credit markets and fundamentals argue for it, but predicting crashes is a tough business. But I will say this. Risks are high: in my opinion, very high.
< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos