Monday, January 31, 2011
31 January 2011
All in all, you might as well stop reading this blog. Although, I have been successful identifying the bull cycle turning points, I have been very wrong trying to identify bear cycle movements.
My theory has always been that when you set the price of a good at too high of a level or too low of a level, supply and demand eventually takes over and causes prices to overreact to the opposite side due to overcoming mean-reversion and then some.
This has been happening in housing.
The diamond market is still relatively tight, but I would imagine that whole scheme will eventually blow up, given enough time.
The stock market is yet another that has been successfully inflated by QEII. This seems to be mainly aimed at shoring up confidence. However, confidence is not what makes the economy go around. Once the free fresh new cash is all used up, the bears will remain bears, the bulls won't be able to buy any more and everyone will run for the exits. This is the ultimate problem with Ponzi/Pyramid Schemes, they always requires more and more capital to keep it going leading ultimately to currency devaluation.
If this classic model applies, the reaction, if and when it comes, should be far worse than if corrections could have naturally come along the way.
They will come to learn in the end, at their own expense, that it is better to endure competition for rich customers than to be invested with monopoly over impoverished customers.
at 10:48 PM