From James Montier at GMO, four types of bubbles: The first type of bubble is what might be called the "fad" or the "mania". This is truly a bubble of belief. In this type of bubble, people really do believe that this time is different, that a new era has begun. These are the great bubbles of history: the TMT [technology, media and telecom] bubble, the Japanese bubble, the US housing bubble and the Roaring Twenties… The second type of bubble is an intrinsic bubble. In an intrinsic bubble, it is the fundamentals that are the source of the bubble. That is to say, earnings booming at an unsustainable rate, which then often gives rise to extrapolation and overcapitalisation by investors. The third type of bubble is known in academic literature as a near rational bubble. To me, these are better described as greater fool markets. They are cynical bubbles in that those buying the asset in question don’t really believe they are buying at fair price (or intrinsic value), but rather are buyin...
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