A Tale of Four Market Bubbles

by: Rogue


Avalon Hill's "Crescendo of Doom, scenario of a Squad Leader", one of the most complex tactical level board wargames of its time, provided blanket coverage to the Western Front of 1939-1941.  That was the time period the Allies were losing World War II. 

Today, one the most complicated real life scenarios is the "Crescendo of Boom".  These events are commonly referred to as bubbles in modern financial terminology.  Bubble is a bad term to use to describe the financial events they are referring to.  First, who is blowing the bubble?   What's it made of?  Where did the pin that burst if come from?  At least this is the picture I have when I think about bubbles.

Crescendo means to get louder until you get to maximum volume.  The sound that gets played is usually a theme.  In October 1989, Japan hits its maximum when it purchased Rockefeller Center (a U.S. Trophy Building) from the Rockefeller Group.  Japan did everything better in 1989.  This was a progressive build up from 1986.  MBA candidates were learning Japanese.  Engineers and managers where studying Japanese engineering and management techniques.  Just when you thought it was safe to get back in the water, the plug got pulled and tub got drained in 1990 (see chart above).

The next theme was technology.  Can you say "internet"?  The market for the next 100 years (NASDAQ) started playing the drum beat in 1997.  But at the end of 1999 stocks were selling for $200 because they were going to $1000.  By the end of 2000 the music had stopped playing.  It was amazing how fast the crescendo of boom turned into doom.

The next two themes are very recent and are still being played out.  In the year 2008, it doesn't take you long to figure out how fast things can happen.  Who would have thought corner intersections were no longer going to have four gas stations or four banks or four mortgage companies vying for your business.

In 2006, the China syndrome became the metronome.  Last year, in October, it hit a peak and gave up 50% of its value.  The speakers on this system may have blown out because commodities and oil boom merry melody have left the China doom dirge an unsung symphony.

Giant was a 1956 drama film starring Elizabeth Taylor, Rock Hudson, and James Dean. The movie portrayed how the oil industry transformed the Texas ranchers into the super rich of their generation.  "Colossus" is the current real life drama of oversized oil prices creating powerful dictators, huge sovereign investment funds, and alternative energy sources into the great affluent of the earth.

With oil at $135 per barrel, remember that the trend is your friend until the end.  So we'll just have to wait to see how the crescendo of commodities finishes.

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