1. Macquarie University – Risk Day Conference
Blowing Bubbles
Michael McCarthy - Chief Market Strategist
CMC Markets and Stockbroking

2. Blowing Bubbles

3. Blowing Bubbles Bubbles and positive risk A behavioural approach
The 3 conditions of a bubble

4. Positive risk

5. Positive risk In one year………. 1623 trades
38% profit from single best trade
75% profit from top 6 trades
Non-trivial

6. Positive risk Why traders love bubbles……
Source: CMC Markets Next Generation platform
Traders love bubbles that are about to burst

7. A behavioural approach
“Consumers are rational agents maximising utility…….”

8. What are the behaviours?
3 conditions
What are the behaviours?
How are they observed?

9. 1st condition
Prices must:
Rise steeply, for a considerable time

10. 2nd condition It must be….. “…..different, this time..”
A divergence from traditional valuation

11. Price increases become exponential, heading into a “blow-off top”
3rd condition
Price increases become exponential, heading into a “blow-off top”

12. Silver 5 April 2011 Prices must rise steeply, for a considerable time
Source: Bloomberg
Prices must rise steeply, for a considerable time

13. It must be different, this time..”
Silver April 2011
Source: Bloomberg
It must be different, this time..”

14. Silver 25 April 2011 Price increases become exponential,
Source: Bloomberg
Price increases become exponential,
heading into a “blow-off top”

15. Silver June 2011
Source: Bloomberg

16. Where’s the bubble?
Source: ABS / CMC Markets

17. Blowing Bubbles