Investing in a bull market is hard enough; hearing it trivialized makes it unnecessarily harder.

It’s easy to say we’re in a bubble. But if you say it enough times, as people have over the years, the word loses its meaning. It’s a troubling symptom of our Cassandra culture whereby people make catastrophic predictions on the back of ideologically motivated cognition.

A cursory reading of Charles Kindleberger’s Manias, Panics, and Crashes shows that speculative manias are dramatic but infrequent. In two hundred years, only the Roaring Twenties and the 2000 dot-com bubble match his standard view of bubbles for US stocks.

According to Kindleberger, every mania starts with a “displacement,” some exogenous shock that introduces lasting change to the macroeconomy—the end of a war, disruptive technology (canals, railroads, the internet), or an unanticipated change in government policy. The fundamental post-displacement outlook improves in at least one important sector of the economy.

Displacement in the 1920s comprised the mass adoption of automobiles, the development of highways, electrification of much of the country, and the beginning of radio. The collapse of the Bretton Woods system was a displacement that led to the 1970s gold mania. In the 1990s it was an information-technology revolution leading to the dot-com bubble. China’s entry into the World Trade Organization in 2001 was another displacement, which led to the bubble in commodities.  

The displacement changes investment horizons, expectations and behavior—the full extent of which remains unclear at first. But once price movements confirm the dominant narrative, an emotionally driven process takes over until it evolves


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