The Psychology of This Market

Crazy stories of a feeding frenzy in housing are what we should expect to be seeing nearing the top. Imagine: multiple offers, selling in a “blink of an eye”, all cash offers – what gives?

After a bubble bursts, the snap-back rally carries with it a snap-back psychology. The irrational behavior at the bubble peak comes back, and often is even more crazy. You can look at market history and see the same psychology in 1930, when the powers-that-be were convinced the recession was over; in 1938, which is the closest analog to today (see chart, courtesy of SlopeofHope); in 1974; and on and on.

This is not surprising. If it weren’t occurring, something would be wrong, and the Obama Hope Rally would not be nearing an end.

The Bubble Echo psychology should accelerate from here. JP Morgan put out a series of recommendations, which include going into emerging markets – another bubble-era theme which has returned. Sumitomo put out a projection of the Dollar going to 50 on the Dollar Index next year and fading as a reserve currency – weak Dollar being another bubble theme, and this an extreme projection. If you keep your eyes open, you will see these Bubble Echo craziness all around.

About Duncan Davidson 228 Articles

Affiliation: NetService Ventures

Duncan is an advisor to NetService Ventures, where he focuses on digital media and the mobile Internet.

Previously he was at four start-ups: Xumii, a mobile social service based on a Social Addressbook; SkyPilot Networks, the performance leader of wireless mesh systems for last-mile access, where he was the founding CEO; Covad Communications (Amex: DVW, $9B market cap at the peak), the leading independent DSL access provider, where he was the founding Chairman; InterTrust Technologies ($9B market cap at the peak), the pioneer in digital rights management technologies, now owned by Sony and Philips, where he was SVP Business Development and the pitchman for the IPO.

Before these ventures, Duncan was a partner at Cambridge Venture Partners, an early-stage venture firm, and managing partner of Gemini McKenna, a joint venture between Regis McKenna's marketing firm and Gemini Consulting, the global management consulting arm of Cap Gemini.

He serves on the board or is an adviser to Aggregate Knowledge (content discovery), Livescribe (digital pen), AllVoices (citizen journalism), Xumii (mobile social addressbook), Verismo (Internet settop box), and Widevine (DRM for IPTV).

Visit: Duncan Davidson's Blogs

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