The Fearful Rise of Markets: Global Bubbles, Synchronized Meltdowns, and How to Prevent Them in the Future

Chapter 21. Bastille Day: Reflexive Markets

“First, market prices always distort the underlying reality which they are supposed to reflect. The degree of distortion may range from the negligible to the significant. Second, instead of playing a purely passive role in reflecting an underlying reality, financial markets also have an active role: They can affect the so-called fundamentals they are supposed to reflect.”

George Soros¹, explaining the two principles of his theory of markets

Synchronized markets warp perception and force politicians and investors alike into historic errors—but eventually collapse under their own contradictions. In 2008, investors bet simultaneously on a banking collapse and an oil spike and caused an inflation scare ...