Why We’ll Always Have More Money Than Sense - By Robert Shiller
When it comes to market bubbles and how they are created, very little, if anything, has changed. This is because human psychology has not changed. Massive bubbles are created when large numbers of people buy into "new era" stories that exaggerate how much the world has improved. For example, in the past few years the global equities and housing bubbles were driven by a giddy faith that world markets were on a tear and prices would go up indefinitely. Our animal spirits are sparked by these tales; we find them irresistible. And since as animals we're also given to a herd mentality, in a bubble we tend to invest too much in the most popular stories—and continue to do so even after the bubble bursts.
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Bubbles are also encouraged by the Internet and by high-speed data transmission. People pick up ideas in newspapers, via TV, or online, then spread them via word of mouth. Anyone who's ever played the children's game of telephone knows that, once started, a story or idea takes on a life of its own. It's probably no accident that the tulip mania of the early 1600s occurred around the time the first newspapers and pamphlets began circulating, and that the crash of 1921 coincided with the first mass radio broadcasts. The Internet helped fuel the tech bubble and the financial crisis. I have no doubt that new social media like Twitter or Facebook will contribute to the next craze, or that the Internet will have other, unexpected effects on markets as well.
- Gmo's Q3 2014 Letter
Link to: GMO's Q3 2014 Letter GMO's 3Q 2014 Letter includes Ben Inker's "Is This Purgatory, Or Is It Hell?" and Jeremy Grantham's "Bubble Watch Update" and "The Beginning of the End of the Fossil Fuel Revolution (From Golden Goose...
- The Wsj Interview With Robert Shiller
Link to interview: Robert Shiller's Nobel KnowledgeQ: One theme that runs through your work is that people tend to make mistakes over and over again. That's quite different than what I learned in college economics—that people are rational. How...
- The Extraordinary Popular Delusion Of Bubble Spotting - By Jason Zweig
Can you spot a bubble? Ever since 1841, when a Scottish journalist named Charles Mackay published the book known today as "Extraordinary Popular Delusions and the Madness of Crowds," the answer has seemed clear. If you watch carefully for signs of euphoria,...
- Look Out Below: Why Skyscrapers Are Classic Bubble Indicators
Thanks to Barry for passing this along.In China, five of the world’s ten largest buildings are now under construction. Look out below!, says Vikram Mansharamani, a financial services veteran and part-time academic who has developed a multidisciplinary...
- Easy Money, Hard Truths – By David Einhorn
Are you worried that we are passing our debt on to future generations? Well, you need not worry. Before this recession it appeared that absent action, the government’s long-term commitments would become a problem in a few decades. I believe the government...