Indeed, bull markets are fueled by successive waves of prior skeptics finally capitulating as their fears fade. Eventually, fear turns to euphoria, and that's the stuff of bubbles.
Sentiment: NEGATIVE
One of the frustrating things for people who miss the first rally in a bull market is that they wait for the big correction, and it never comes. The market just keeps climbing and climbing.
The bubble, as investing phenomenon, has been well studied ever since the 17th-century tulip bulb frenzy. Its counterpart in bear markets is not well understood.
What we need to understand is, one, that there are market failures; and two, that there are things like asset bubbles and irrational exuberance. There are periods of booms, bubbles, and manias. These things, if left to themselves, can lead to crashes, to busts, to panics.
Fear and euphoria are dominant forces, and fear is many multiples the size of euphoria. Bubbles go up very slowly as euphoria builds. Then fear hits, and it comes down very sharply. When I started to look at that, I was sort of intellectually shocked. Contagion is the critical phenomenon which causes the thing to fall apart.
Any bull market covers a multitude of sins, so there may be all sorts of problems with the current system that we won't see until the bear market comes.
I think we're in the beginning of a bull market. When a bull market begins, nine months later the economy turns around.
For us, whether the market is skewed from a bubble perspective or not really is mitigated by staying focused on what we do best.
Fear tends to manifest itself much more quickly than greed, so volatile markets tend to be on the downside. In up markets, volatility tends to gradually decline.
Having spent 10 years studying emerging markets, I know that you have patterns repeated over and over again. A bubble is like a fire which needs oxygen to continue... when you see there is no oxygen, things change.
Stock market bubbles don't grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception.