《BUBBLE$ And How to survive them》-John P. Calverley

Talker：Ziv Yim Date：19/04/2008

Checklist: typical characteristics of a bubble:

Rising Price	Underlying reason	Easy Money
Rapidly rising prices High expectation Overvaluation compared to historical averages Overvaluation compared to reasonable levels Several years into an economic upswing	Some underlying reason A new element “paradigm shift” New investors drawn in New entrepreneurs Considerable popular and media interest	Major rise in lending Increase in indebtedness New lending policies Inflation subdued Relaxed monetary pl. Falling savings rate A strong exchange rate

Scale of bubbles: Securities, Housing

Deflation.

Depression explanation:

Business cycle

Monetary interpretation

Financial explanation

Pathology of Bubbles:

Prospect theory	Anchoring	Other tendencies
loss aversion(3xgain =loss) mental accounting /framing	Fools rallies another major rally toward that level before finally succumbing.	Overconfident Overoptimisitc Herd instinct(羊群心理) Congnitive dissonance(一致性) Disaster myopia Disaster magnification

Rational Bubbles

Critical state theory

Policy:

Nonmonetary control bubbles	Monetary policy	The choice
Property/shifted tax Restraining lending release more land buy back stock	'lender of last resort;, Maintain money supply degree of international policy coordination.	debt destruction bailout inflation

Strategies for investors:

After the stock bubble	Property bubble	Pensions	Depend on inflation
Age30, 30% cash LTI,not to take risk Contrarianism	to downsize or change house	ratio contrarianism	stress test

3 advice:

1. Regular Savings

2. Diversification

3. Contrarianism