When someone says the financial bubble has burst, we all know what "burst" means: A decline in stocks, indexes and real estate. Yet a few people realize that the "bubble" itself involves more than just asset values -- it also involves psychology. And it's really important to distinguish between assets and psychology, for this simple reason: the end of bubble asset values does not mean the end of bubble psychology.
In fact, mini-bubbles can happen after the big bubble has burst.
Depending on how big the big bubble was, it can take a long time and a lot of losses to extinguish the psychology that drove it. It's easy to understand if you think about it. If things are not so good now, and better times are in the past, it won't take much to get the old enthusiasm going.
Too much enthusiasm based on too little evidence is common to all bubbles, big or small. So here's where it gets tangible.
Gold prices have recently pushed to all-time highs, the Dow Industrials to a new yearly high. But gold and the Dow have done this alone, as in NO other equity indices or commodities have followed.
Now which markets get all attention in the media? Gold and the Dow, of course -- to the point that people think the performance of these two markets is not the exception but the rule.
Too much enthusiasm, too little evidence.
Enjoy the cartoons.
This is not a cartoon :)
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