Credit & Other Cycles

Stability is Destabilizing - The Levy Institute
The ultimate academic resource for understanding the cause of the credit crunch. Academic home of the late Hyman Minsky, whose Financial Instability Hypothesis describes how the structure of a capitalist economy becomes more fragile over a period of prosperity. In this paper, Randall Wray estimates that the losses for the financial sector could amount to trillions of dollars. Read more..

Irrational Exuberance, 2nd Edition – Robert J.Shiller
Six years after correctly predicting the bursting of the Internet Bubble in 1999, Robert Shiller strikes again. In this 2005 update to his seminal book, Shiller prophets the collapse of the US housing market. The rest is history…in the making. Read more..

The Alchemy of Finance – George Soros
In this timeless investment book, Soros challenges the textbook model of efficient markets and rational expectations, what he labels “market fundamentalism”. As an alternative, Soros contends that markets do not tend towards a stable equilibrium because the expectations and actions of market participants will affect the market which will, in turn, shape expectations in a continuous reflexive process. Reflexivity means that equilibrium may never be reached, because the attempt to reach it moves the target. Much like the psychological equivalent to Heisenberg’s Uncertainty Principle. You may get lost in the subtleties, but still a great read. Read more..

Bubble Talk – Theta Capital Management
In this May 2008 presentation for the the Dutch society of investment analysts VBA, Theta shares its thoughts on the inflation and subsequent deflation of the credit bubble. Financial alchemy and skewed financial incentives have led to the rise of a shadow banking system. This system is now collapsing which will lead to a prolonged phase of de-leveraging with serious and lasting consequences for the financial system and the global economy. We also show how a long/short investment approach may benefit from the opportunities created by higher volatility and more price dispersion in risky assets. Read more..