Exciting Events and Market Bubbles

by Roger Bourke White Jr., copyright May 2020


Many market bubbles in stocks and property values are associated with an upcoming exciting event. The first time I recognized this pattern was when the Hong Kong Turnover was coming up -- in 1997 Hong Kong was being handed over to China after being ruled by the UK for over a century. The second time I saw this pattern was when the world was getting excited over what computers might fail as their clocks went from 1999 to 2000 -- the Y2K event. Both of these events were followed with a stock market bust, a bubble burst, and brief economic recessions. This essay talks about this pattern and using it for forecasting.

When a stock market bubble pops

A stock market bubble pops when the exciting event causing it transforms into a no longer exciting non-event. The Hong Kong Turnover happened 1997, became history, and then the Asian Flu downturn started. The excitement over Y2K ended when January 2000 arrived and past without incident, but then the Dotcom Bust started.

I was predicting that Brexit would follow this pattern, but the deadline for the exit became messy and before the end happened it was superseded by the much more exciting Coronavirus Panic -- no bubble pop.

So, when will the Coronavirus Bubble pop?

Yes, there is a bubble. The world's economies are nose-diving but the US stock market hasn't followed, instead it has gotten quite turbulent -- moving dramatically both up and down in daily dramas.

This bubble pop will be much harder to call because when the Coronavirus Panic will end is much harder to call. It will end, someday, but defining when and how is not something easy to predict. This means that predicting when the bubble will pop is not going to be easy, either.

In fact, in this case the two may reverse themselves -- the bubble popping may indicate the panic is no longer an exciting event.



--The End--