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.  Moment of truth, when reality can no longer sustain the exaggerated expectations.

6.  Twilight period, when people continue to play the game although they no longer believe in it.

7.  A cross point, when the trend turns down and the bias is reversed.

8.  Catastrophic downward acceleration, commonly known as a crash.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>