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> -----Original Message-----
Daniel Goncharoff wrote:
>
> In my opinion, an attempt to compare the real estate bubble in Japan,
> which seriously overinflated the net worth of virtually every major
> company, and forced the markets there to reconsider the basis for
> valuation of every company, to the accounting tricks at a much smaller
> number of companies in the US is seriously flawed.
>
I haven't read much on the Japanese Nikkei bubble, but my understanding is that
the picture there wasn't too dis-similar to the US markets in the late 90's. At
the end they saw: (1) a boom that was fed by a couple of decades earlier of
almost unabted expansion, (2) mass, popular participation, (3) a major increase
in foreign investment, (4) a feeling that an investment in the market just
couldn't lose, (5) ridiculous valuations. At the detailed level, there are many
differences between the US markets (and economy) and Japan's. However, I think
the authors are somewhat justifiably arguing that the process of a boom and a
follow on bust (but not a full-fledged crash) are similar, and that they
generate a similar "signature"; that is, they can be fitted to the same model,
and their model may have more descriptive power than other models that have
been offered to date. From the point of view of cycle analysis, their
non-linear progression of cycles is a departure from fixed cycle period
analysis, and offers some interesting possibilities. A question that came to
mind as I read the article is - how well would their formulation of market
price movement fit with Elliott Wave Theory?
> It looks to me that this 'research' has only identified an apparent
> similarity between the movements of the two markets in their respective
> time frames, but the researchers have no clue why the apparent
> similarity exists, and therefore have no real basis for postulating that
> the relationship will continue. They are grasping at straws.
>
> Shameful, really.
Well, predictive models of the market, and most economic time series are
difficult to come by. Although their model is a curve fit, they have tried
applying it to other booms/busts (gold, currencies, for example) and have been
able to achieve a good fit. They've made a specific forecast (which is rare in
most academic work) -- it will be easy to follow, and to find out if their
model accurately tracks the S&P over the course of the next couple of years. If
the market does play out the way the model suggests, it won't prove the model,
but it will add some level of confidence to the idea that booms/busts follow a
relatively predictable process.
> Gary Funck wrote:
> >
> > http://arxiv.org/abs/cond-mat/0209065
> >
> > The US 2000-2002 Market Descent: How Much Longer and Deeper?
> > Authors: D. Sornette (CNRS-Univ. Nice and UCLA), W.-X. Zhou (UCLA)
> > Comments: 15 pages + 3 tables + 13 figures
> > Subj-class: Statistical Mechanics
> >
> > A remarkable similarity in the behavior of the US S&P500 index from 1996 to
> > August 2002 and of the Japanese Nikkei index from 1985 to 1992 (11
> years shift)
> > is presented, with particular emphasis on the structure of the
> bearish phases.
[...]
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