Smarty_Pants

The Market's Fictitious Infallibility

Yes an extraordinary delusion indeed.

Most speculative manias of the past stemmed from an initial ballooning of easy credit which fueled the booming asset price whether tulips, south sea trading companies, dot com stocks, or real estate.

Each time the easy credit poured into the asset until it built the 'knowledge' that prices on tulips/foreign trading companies/dot coms/real estate always goes up. Prices become so high that leverage comes into play, at first to multiply profits but eventually just to get a foot in the door. Prices zoom on a foundation of cheap debt,

Until ...

everyone discovers that speculators can't pay off the debts and the 'knowledge' of ever increasing prices unravels, then unwinds, and finally plunges. Often to levels as far below rational as they were above.

Speculative manias aren't new, just different and usually more than a generation apart. Long enough for the society to forget the lessons from past manias.

Be careful that the overshoot to the downside runs its course before snapping up what appear to be bargains. Despondency can spread as far as mania can.