How It Works
- 1
Identify positive feedback loop (e.g., Tech stock rises -> Cheaper capital -> More R&D/Acquisitions -> Better Earnings -> Stock rises)
- 2
Ride the loop up (Boom)
- 3
Identify when the loop breaks (Negative Feedback)
- 4
Short the loop down (Bust)
Key Mechanics
Cost of Capital feedback
Wealth Effect
Collateral value
Confidence contagion
Regulatory Context
None. This is the nature of markets.