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Showing posts with the label Bubbles

What is the Consumer Price Index (CPI)?

What is the Consumer Price Index(CPI)? The Consumer Price Index (CPI) is a measure of the change in prices paid by consumers for a basket of goods and services. It is one of the most widely followed economic indicators, and it is used by investors to gauge inflation and make investment decisions. How is the CPI calculated? The CPI is calculated by the Bureau of Labor Statistics (BLS). The BLS surveys households across the United States to collect data on the prices they pay for goods and services. This data is then used to create a "basket" of goods and services that represents the spending habits of the average American household. The BLS calculates the CPI by comparing the prices in the basket of goods and services in a given month to the prices in the same basket of goods and services in a base year. The base year is usually 2000. How does the CPI affect investing? The CPI is an important indicator of inflation. When the CPI rises, it means that the cost of living is incre
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How Investor Sentiment Changes and Why It Matters

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Stock Market and Cryptocurrency Bubbles 1. Irrational stock market behavior While the stock market is usually driven by rational investing common sense, exceptions do occur from time to time. This is when the overall market or a specific industry creates irrational stock prices at certain times. However, this phenomenon is not a problem in itself, as stock prices are heavily influenced by emotions as well as rational judgment. 2. Clusters and bubbles: centered around cryptocurrency mania However, what we should be concerned about is when this emotional sentiment turns into herd mentality and creates extreme skewness. This is when bubbles are most likely to occur. The cryptocurrency mania of the winter of 2017 is a great example of this: many people took irrational actions in the name of a "new paradigm." The result was a severe bubble, and many people lost a lot of money. 3. Evidence of herd mentality: Analyzing analysts and reactions to articles We often observe extreme reac
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