A bubble is caused when hot money chases an asset class. That can be the Technology industry, the Real Estate industry, or Commodities. Most people want to make money fast. Its the dream of most investors to strike it rich. That is what drives Capitalism. Just give them a story and sell it hard. That brings in the money. It becomes so so easy to make money that the banks get in the game and start to loan money on an assumption that things will continue to grow at the same rate.
That works great until the grow rate starts to slow. It then takes more and more borrowed money to prop up the asset. It also takes more and more lies by the investment bankers to keep the public money coming in. The combination of the two creates the bubble. Prices of the asset become unsustainable. All buyers and no sellers is a good thing until the money dries up. The end result is a bunch of leveraged owners who can't get out.
There will come a time when the loans start to fail. That is the beginning of the end of the bubble. The system will tell the public that there is no reason to panic and everything will be OK. The problem is that leverage that was a good thing when prices were rising is now a bad thing. The price has to go back at least to where the game began.
The Tech bubble completely retraced it move from 1995 to 2000 by Oct of 2002. The housing industry, which broke out in Jan of 2002 and peaked in July of 2005 more than had retraced that move by July 2008.
Now it is the turn of the Oil and commodities industry to do the same thing. They broke out in July of 2004. The move as measure by the XLE began at about 34. That whole move should go bye bye. It took Real Estate a little over 2 years to destroy its whole move. The oil index...and Gold ...and commodities topped in July of 2008. I would think that they will have destroyed the whole move by the MIDDLE OF NEXT YEAR.
Look at the chart of CSCO going ito is highs in 2000. Th bubble began in ealy 1998 with a break of 9. The top came after a parabolic move to 82 in March of 2000. The whole move had gone bye bye in Oct of 2002. It made a low of 8 in Oct of 2002. IT IS NOW AT 23.28 (that was the Tech bubble)
Look at the chart of KBH going into its highs of Jul 2005 at 85. The break out was at 20 in early 2001. The whole move was gone by Jan of 2008. It i now at 13.46 AND IS STILL FALLING.( that was the Housing bubble).
Look at the top in IYR (Commercial Real Estate...surragate for the consumer bubble) it went parabolic in Jan 2006 and topped in early 2007 at 95. It wipped out its whole move by Oct 2008 it is now 42.30
Now look at the chart of AEM the break out was 20 in Dec of 2005. It went parabolic in July of 2007 and topped in March of 2008. The target is 15
Look at the chart of EEM the emerging market index. The break out again was at 20 in March of 2005. The move went parabolic in late 2006 and topped in Nov 2007 at 56. Now at 40 the Target would be 15.(This is the emerging markets bubble)
Look at the move on the GLD that began it parabolic move in Sept of 2007 at 70. Tne low of that nove began in Oct of 2005 at 43.
Notice that in all of these charts after they made the parabolic top they had a huge sell off that tries to rally back to the prior top. That rally is the rally where the system tell you that things ae going to go back to where they were BEFORE the sell off. That rally is too keep the public in and to let the insiders out. THAT IS WHAT THIS RALLY IN THE STOCK MARKET AND THE COMMDOITIES IS ALL ABOUT
THE BUBBLE HAS BURST THIS RALLY IS YOU LAST CHANCE TO BAIL. THERE IS GOING TO BE A FULL RETRACEMENT OF THIS MOVE BECAUSE THAT IS THE WAY IT WORK.
The beat goes on....Mikey
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