The Anatomy Of A Pre-Crash Bubble

Tyler Durden's picture

We previously highlighted Didier Sornette's excellent work trying to identify pre-crash conditions in financial markets and John Hussman's chart below suggests we are indeed heading that way. His warning, however, "Don't rely on further blow-off - but don't be shocked - risk dominates... Hold Tight."

 

 

Via @Hussmanjp

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HedgeAccordingly's picture

200 more spooz points. Before Brooklyn. http://hedge.ly/16DAaWW

tsx500's picture

oops i clicked on this story cuz i thought it was on BTC .....!!

Truthseeker2's picture

 

"Global Financial Architecture and Economic Systems on Verge of Collapse"

 

http://stateofthenation2012.com/?p=2200

 

 

"Perhaps we should now take off our blinders and admit that while, yes, all of the indicators are there, as they have been for quite some time, for a truly catastrophic global economic meltdown and financial cataclysm, these events are still to a great extent controllable.  All of us have seen bubble after bubble grow and balloon, and merge and overlap, and inextricably interpenetrate each other, until all we have is one massive bubble ready to pop.  But, when will it pop?!

It will pop when the confidence level is sufficiently undermined by the very same MEDIAthat controls the flow of the relevant information."

 

 

King_of_simpletons's picture

After waiting for 5 long years, I am wading in to the stock market just now.  Missed the 39% upswing. The bull market is just begining. King Kong Yellen has not started her tenure yet.

 

Abi Normal's picture

Be careful in that casino, take in only what you can afford to LOSE!  You missed 4-5 years of gains, still think that there are that much more to gain?  Considering the economic and fiscal climate?

You have now been played, just like all the other moms and pops, who are going to lose everything when the house crashes!

Crash it will, just a matter of when...I say sooner than later!

Burticus's picture

Yes, good idea, buy the f*cking all time high (BTATH) in stocks, picking up nickels in front of the steam roller shown on the chart.

Make sure that whatever you don't use to buy stocks, hold in FeRNs in a bailed-out money-center bank.  And no matter what, don't ever convert any of your FeRNs into precious metals!  After all, they're not real money, always in a bubble and you can't eat them, of course.

akak's picture

Unfotunately, we all know that TPTB can count on the increasingly impatient and juvenilized, ADD-afflicted, ultra-short-term-obsessed lemmings otherwise known as 'modern investors' to be giving up, or to have long ago given up, on precious metals in favor of the latest bubble du jour.  Because everyone knows that when you fall off the Empire State building, it's nothing but party time until you pass the 2nd floor.

lickspitler's picture

ZH perma bears, views on ..gold wrong, silver  wrong, stocks wrong , bonds wrong, bitcoins wrong.  The broken clock trading method.

Imminent Crucible's picture

While you're licking that spittle, take note: We were buying PM's back when gold was under $300 and silver was $4.  Come back and sing us that song about your Harare stocks in six months.

Wait--what's this?: "lickspitler: God damn that BITCOIN thing, can it just roll over and collapse.Constantly reminding me of a possible shift."

VD's picture

Dragon King > 'Black Swan'

Legit analysis > Mumbo jumbo

MythicalFish's picture

Don't think Taleb would be a huge fan of forecasting the crash to the exact date, but this beautiful picture comes to mind:

 

http://www.replicatedtypo.com/wp-content/uploads/2011/10/turkey.png

 

VD's picture

Taleb is a certifiable sophist clown compared to Didier.

Proofreder's picture

?????

A link?

Anything ???

Note:  Known Fskhead, typical know-nothing; ignore anything connected with vd in the future to save time scanning ZH.

 

VD's picture

that's the best you got? what do you need a link for? you still won't get it.

 

edit: fuck it, i'm feeling geynorouys this am:

http://arxiv.org/find/all/1/all:+sornette/0/1/0/all/0/1

RockyRacoon's picture

 

This paper is particularly enlightening:

http://arxiv.org/pdf/1205.0635.pdf

 

arXiv:1205.0635 [pdf, other]
Super-exponential bubbles in lab experiments: evidence for anchoring over-optimistic expectations on price Andreas Hüsler, Didier Sornette, Cars H. Hommes Subjects: Trading and Market Microstructure (q-fin.TR)
VD's picture

good man RR! you actually bothered to read, unlike the regular ZH trolls...

 

here's another interesting bit from the article you cite:

 

 

"..because traders are rewarded more by correctly foreseeing the other traders’ forecasts than by correctly calculating the fundamental price Pf."

RockyRacoon's picture

It's mathematic "proof" that all you have to do is outrun the other campers in order to escape being eaten by the bear.

tempo's picture

It will not end. All major currencies are monetizing and attempting to devalue against all other currencies. Still there is no inflation because automation makes labor cheaper, creates unemployment and part time workers. This requires larger entitlement central planning. There is no end to this cycle. The .0001% will own everything.

moneybots's picture

  "It will not end"

 

It will not end well

Imminent Crucible's picture

"It will not end"

Yeah, baby. Because trees do grow to the sky. A camel's back can bear an infinity of straws. That which is unsustainable will sustain forever. 

And a handful of super-rich oligarchs will withstand 300 million totally pissed, hungry, penniless American rednecks with more guns and ammunition than most armies in history. 

You can get people to believe pretty much anything these days.

wisehiney's picture

Soooooo......all in leveraged til New Years?

spinone's picture

Oh shit, the Finite-Time Singularity!  Is that bad?

Silver Bully's picture

"Don't rely on further blow-off - but don't be shocked - risk dominates... Hold Tight."

http://www.eriktaheri.com/wp-content/uploads/2013/04/holdfast.jpg

MythicalFish's picture

You bet. But this is not the big one, the world's actually going to end 2050. It's in his book (Sornette).

 

http://www.mathclimate.org/sites/default/files/Sornette_ICMS2013.pdf

greatbeard's picture

>> the world's actually going to end 2050

That would make me 95.  I'm good with that.  But it's not actually the world that will end, just the human end of it.  That, imo, would be an improvement.

ebworthen's picture

Don't short this pig; Yellen is coming in and she's got two teats worth of QE in her at the least.

Kprime's picture

the average sow has 12 teats, some have only 6-8, but a prime sow has up to 16 teats.

 

QE 16 on the way,  soooooeeeeeee, oink oink

Disenchanted's picture

Too bad the teats in question are on a bore(boar)...

 

 

Useless as tits on a boar hog

El Oregonian's picture

"Don't short this pig; Yellen is coming in and she's got two teats worth of QE in her at the least"

Don't short this pig; Yellen is coming in and she's got two teats worth of QE in her at the breast.

fixed.

harlanaladd's picture

Not quite fixed.  It should read:

Don't short this pig; Yellen is coming in and she's got two teats' worth of QE in her at the breast.

 

teats' is a plural possesive in this  sentence. The construction is identical to:

a dollar's worth of silver

or

a thousand dollars' worth of gold

If you're going to correct someone, at least be correct.

Yen Cross's picture

  Andrew Ross Sorkin & Joe (Isuzu) Kernen ?      Kernen is bored beyond requiem.

  Ok, I'm over it.

     I wish it was a bubble! We have a {.govgeodesic dome} with multiple explosions ready to ignite!

 Credit is blown out.

 Bond yields are steepening.

 Liquidity is tightening. Look at repo rates everywhere?

bobert's picture

Diversification and being overweighted to liquidity is your friend today.

Yen Cross's picture

 respectfully 'Bobert', I'm a currency trader.

   Bobert, Hmmmm   I had some crawfish with a bobart. Once upon a time.

    I can't wait to take that guy cam-loop fishing with me! He'll pass out at 9000 feet!

uncle.bigs's picture

We've already started to see the cult stocks crack.  Tesla, Yelp, Whole Foods, and a few others are down fairly significantly.  

Dr. Engali's picture

So get out January 13th.,,,got it.

bobert's picture

Why, five days prior to expiry or something more significant?

StandardDeviant's picture

I'm guessing he read "Jan-14" on the X-axis as "the 14th day of January", rather than "January 2014".

Imminent Crucible's picture

Get out January 13th? Uh-uh, much too late.  November 13-14 is Grid-Ex II.  A simulation of continental grid collapse in the U.S., Canada and Mexico.  What an ideal time to have all power and communications collapse synchronously due to an "unexpected failure".  All cells of resistance inoperative, no one knows anything about anything, everything just goes dark.

Hey, it's not like I'm trying to scare anyone or anything.

disabledvet's picture

"give me a tulip mania or give me death." the dollar hasn't busted a move higher "in conjunction with" the equity blast off. nor has gold truly rolled over like it did in the 90's as "all available cash gets sucked into the Wall Street Vortex." not that I'm being picky of course...just saying. 1998 had a ferocious correction as I recall and volumes high on the upside not just the downtick. and Banks are leading the charge this time...something that hasn't happened since the 70's actually. if I were to pick two projects that stand out "credit wise" it would be the massive build out of the Texas Gulf Coast shipping and the same happening in Loiusiana as well. The second would be the propulsion systems the US Navy is trying out (which is one reason why Tesla may not be in a bubble at all I might add...although the systems are all General Electric designs. The US Navy always has an interest in battery tech.) At some point the world is going to have to come to grips with Fukushima and Southern Europe I might add. That is unless we really do get a blow off top here.

andrewp111's picture

You can shift the endpoint by large amounts of time in either direction and the curve looks about the same. That is the problem with bubbles. You don't know what year the endpoint is in, let alone the month. And the greatest gains in bubbles are always made right before the end.

Escapeclaws's picture

I've played around with these log-periodic series in Mathematica and what you say is correct. This series is actually a solution curve to a fairly simple DE. There is a very nice paper on this by Emile Jacobsen which also corrects some mistakes of Sornette. One of the issues in arriving at the best fit parameters is that you must use a genetic algorithm in the optimization process.

This process works well when you apply it to price data that displays this log-periodic behavior. I divised a simple method for obtaining the parameters, but, in general, if you see a price series that is clearly log-peridic, take it as a warning that a crash is on its way.

Incidently, the log-periodic idea is just the fact that you have a sinewave where each succeeding lobe has a smaller period and a smaller amplitude. Triangle formations also display this.

You can use this to buy the dips once you fit a curve. You can also fit this Sornette curves to post-bubble declines. In those cases, the periods and amplitudes increase with time.

OutLookingIn's picture

Personally, I just cast my chicken bones and devine the signs.

kurt's picture

The hyperneptuminium of the hippotomous quared by ramplitude auger-rectumitude qualcum navigates mitigates and/or posticulates a most propitious postularity!

Dugald's picture

No, sorry, you just don't get it.......

Its...The Sqaw on the Hippopotamus hide is equal to the sum of the Sqaws on the other two hides......got it?

Straw Dog's picture

Have you seen the asymptote on that mother function.

akak's picture

You are obviously a master of ananonymystical algebraic coconuttery, a veritable parangong of US 'american' monolization of the crypto-quasi-pseudo-intellectual means and upping with blobbing-uppityness.

Squid-puppets a-go-go's picture

most eloquent sophistry, my man