Operation TWIST Again: Psychiatry of a Market Crash

Sept. 11, 2010 - PRLog -- The Market Crash being a switch from a period ofIrrational Exuberance to a period of Deep Depression I decided to tryto draw a parallel between a collective bipolar disorder in order topredict the occurrence of a Market Crash, the stage of the switchbetween a maniac state to a depressive state.

This is a summary of the article:
http://seekingalpha.com/instablog/429369-shalom-hamou/93045-operation-twist-again-psychiatry-of-a-market-crash

But how do we know when irrational exuberance has unduly escalated asset values, which then become subject tounexpected and prolonged contractions as they have in Japan over thepast decade? And how do we factor that assessment into monetary policy?We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, itsproduction, jobs, and price stability. Indeed, the sharp stock marketbreak of 1987 had few negative consequences for the economy. But we should not underestimate or become complacent about the complexity ofthe interactions of asset markets and the economy. Thus, evaluating shifts in balance sheets generally, and in asset prices particularly,must be an integral part of the development of monetary policy.

Let's look first at the definition of a bipolar disorder.

http://www.youtube.com/watch?v=dNT-sc1ymEM



As any psychiatrist knows a bipolar, although he knows exactly when heis a depressive state he is the last to know when he is in a manic state.

Financial crises are characterised by discontinuous breaks in market pricing the timing of which by definition must be unanticipated - if people see them coming, then the markets arbitrage them away.

We have to detect what are the symptoms which lead to the switch between that manic state to depression.

In order to detect a collective pattern I have tried different Google Trends on several themes that are common to people who are in that state. I couldn't find something that would be meaningful enough. Till I asked the Doctors. The first fact that tells a Doctor that a patientis switching is the fact that he start to feed himself again. I tried a Google Trend on Food and I found my leading indicator.

As we can see in the chart above in the news reference volume the 2008 crisis was lead in May-June 2008  with the crash proper in October. Similarly another top occurred in March 2010.

Definitely we have the symptoms of an impending depression.

In one of the greatest investment markets in theworld, namely, New York, the influence of speculation (in the abovesense) is enormous. Even outside the field of finance, Americans areapt to be unduly interested in discovering what average opinionbelieves average opinion to be; and this national weakness finds itsnemesis in the stock market. But the essential issue here isone of insurance, with a relatively modest premium, against apotentially catastrophic, very low probability event.

For other evidences (Fundamental, Technical and Tempo) look at Operation TWIST Again: Market Crash
http://www.suckerforum.info/forum/topic/the-yield-curve-t...

Facebook Event: The Market Crash: Be Prepared.
http://www.facebook.com/event.php?eid=132651053416423

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After the Crash:

On Sept. 22nd at 12:00 PM EST, as we will have exhausted all our other options, I will, on "Market Crash: be Prepared" display a series of videos presenting my alternative to the Deep Depression:


An ideology is, is a conceptual framework with the way people deal with reality. Everyone has one. You have to -- to exist, you need an ideology. The question is whether it is accurate or not. And what I'm saying to you is, yes, I found a flaw. I don't know how significant or permanent it is, but I've been very distressed by that fact. A flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak. That's precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well.

History teaches us that men and nations behave wisely
once they have exhausted all other alternatives