Lifecycle of a Financial Bubble – Minsky

Today I read the book Manias, Panics and Crashes.  And I think the following outline of a financial bubble is very insightful to understand the past and the future. Rise of the Bubble     1. An outside shock to the macroeconomic system. A displacement is an outside event or shock that changes horizons, expectations, anticipated profit opportunities, behavior—‘some sudden advice many times unexpected’     2. The economic outlook and the anticipated profit opportunities would improve in at least one important […]

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Field Runners Strategy

I’ve come across an awesome game called Field Runners in the IPhone.  It is very fun, and here is my strategy for the Grasslands Map and the highest level I get to is 115 on ‘Hard': The same strategy on ‘Easy': Here are the reasons for the above layout: 1. All heavy weapons are concentrated in the horizontal path.  This is the only way to defend from the fast running airplanes. 2. For units other than airplanes, they must go […]

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Some note on the history of boom and bust

1.  Quick rate cuts provides liquidity to the economy, and would result in consumer price inflation or asset price inflation.  The expansionary move fuels the self-reinforcing uptrend that defines a boom. 2.  High Fed Fund Rates will stall growth, but will bring inflation down. 3.  During a self-reinforcing boom, wall street analysts will feel great pressure from their clients (investors, fund managers) to act against their own bearish believes. 4.  The driver of a bull market is usually caused by […]

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Aspects of investor psychology

I read a paper regarding investor psychology today.  And here are some notes: Some psychological biases that affect investors: 1. Overconfidence.  Investors are overconfident about their predictions or judgments. 2. Optimism.  Investors underestimate the likelihood of bad outcomes over which they have no control.  Investors underestimate the role of chance in human affairs and misperceive games of chance as games of skill. 3.  Hindsight.  Events people did not anticipate appear almost inevitable after they occur.  Hindsight promotes overconfidence, by creating […]

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The Boom Bust Model by Soros

Just something worthy remembering.  A typical boom-bust cycle has eight stages: It starts with a prevailing bias and a prevailing trend, kicking off a reflexive process. 1. The trend is not yet recognized 2. The trend is recognized and reinforced by the prevailing bias.  The process approaches far-from-equilibrium territory. 3.  A period of testing intervene when prices suffer a setback. 4.  If the bias and trend survive the testing, both emerge stronger and the far-from-equilibrium condition is firmly established. 5.  […]

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