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Actually, you've missed quite a few big ones, have you read Kindlebarger?


I wouldn't say that bubbles are rare at all, and it wouldn't surprise me if there were lots of them before 1637 that just aren't well recorded. The limited scope of trade in those days would mean that such events weren't as disruptive as they are today.

I thought about also listing the panics, and I started to, but then I realized they were off-topic. This article is about asset bubbles, not about panics. Therefore, the crash 1825, in England, the crash of 1873, in the USA, the crash of 1907 in the USA - all of those are off-topic.

I suppose one could make the argument that before a panic, bank accounts are overvalued assets.

That's just it, you could define it however you want, but as soon as you do, the whole conversation falls apart. If you define all panics as asset bubbles, then pretty soon you need a new term to mean what "asset bubble" used to mean. I think a lot of these conversations fall apart over semantics. So I tried to use the phrase asset bubble in something like the sense that the article above seems to.

I'm not sure what you mean when you say If you define all panics as asset bubbles, then pretty soon you need a new term to mean what "asset bubble" used to mean. "Asset bubble" must always be followed by "panic" by definition, otherwise you're actually seeing an increase that could be called "fairly priced" instead of "inflated." Look at the five year chart on AAPL, is it experiencing a bubble at a P/E of around 21, or is the stock somewhere close to a fair valuation? What about AMZN trading at a P/E of around 63? As far as I'm concerned, there's no way to be certain of the answer to this question until the future happens: if the stock crashes, then it was a bubble, otherwise it was fairly priced. If you have a better answer to this question than that, then you are either a wealthy (or soon to be wealthy) portfolio manager, or you should seriously consider that as an occupation if making a lot of money is your goal.

Yes, but not every panic is caused by an asset bubble. The panics that are caused by asset bubbles are a subset of the of panics. There are other panics that have other causes - both supply side shocks and demand side shocks can lead to a panic. Thus, I left out a lot of panics, which were not caused by asset bubbles.

What if AMZN had a P/E of 630? What if it had a P/E of 6300? What if it had a P/E of 63,000? What if had an infinite P/E, by which I mean large losses and a sky high price?

You need to be careful about what examples you choose. If you only choose reasonable examples, then you are really not making a strong case.

Actually, it was the banks lending money to whoever was investing in the overvalued asset du jour and then not getting that money back that actually caused the panic. In the days before the FDIC, any significant question that was raised as to a bank's solvency was a death sentence because depositors had to be among the first at door to get their money out or it was all lost.

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