Secondly, How is it exactly that a devalued dollar caused a bubble in residential real estate but not in commercial real estate? Can you give me examples of other sectors of the economy which are or recently were in a speculative bubble due to a "devalued dollar"?

BTW, the lowered value of the US Dollar has more to do with our ever increasing budget deficit far more than anything else.

And, the fact that the market movements and participant behavior affect each other bidirectionally seems to me closer to the definition of a market than an indicator of anything special going on. Put another way, if the interactions weren't bidirectional, it wouldn't be a market.

Reflexivity, the way I understand it, is more than just reaction to market movements, it's the creation of some sort of systematic bias in behavior due to a consistent pattern of movement. For example, markets have been going up so long that they're just bound to keep going up (like Texas real estate, right?) – this is how bubbles happen.

Perhaps, then, your insight is that if market participants *wire their behavior* to market prices, this wiring is *consistent across many participants*, and it creates a *positive feedback loop*, then what looks (at a distance) like an observer effect occurs. These conditions are how it is different from markets operating normally, in which of course there is still observation and bidirectional influence. In normal markets, the wiring tends not to be very consistent across participants and also does not tend to have positive feedback effects (traders usually have sell and buy thresholds).

Interestingly, venture capital is wired in this perverse way. The standard procedure for marking up valuations is to base them on the most recent financing round. If public markets and/or acquisition prices are going up, VCs start to pay higher valuations in financings; which increases the valuation of portfolios generally; which feeds back positively into both the LP capital raising process, entrepreneur valuation expectations, and other processes, even though the actual prospects of the individual companies haven't particularly changed, particularly considering that the long time horizons for VC funded companies likely take them to a different place in the acquisition/public market cycle.

Charles Hughes Smith is a someone that William Safire and Spiro Agnew would likely refer to as one of those "nattering nabobs of negativity", maybe even alarmist. Unfortunately, like a lot of the nabobs recently, he's been pretty much spot on about the housing crisis, the dollar and oil for over three years now. Well ahead of the wave and closer to the future economic conditions than most of us.

You'll see a great Soros quote at the bottom of his page: "Economic history is a never-ending series of episodes based on falsehoods and lies, not truths. It represents the path to big money. The object is to recognize the trend whose premise is false, ride that trend, and step off before it is discredited."

I think what he's getting at is that, possibly because of the Heisenberg principle and/or the Observer Effect: even if there was a truth, we don't have access to all of it, and via language, only a very small percentage But we can sometimes approximate enough to at least see the wave coming. Similar to the idea (Gibson?) about the future being unevenly distributed.

If you haven't already, check out "The Origin of Wealth" by Eric Beinhocker. Another brilliant and entertaining work on statistics, some game theory, stochastic waves, complexity economic, the behavior of markets, thermodynamics and innovation. My take away: Even if we could measure everything and found everything to be deterministic, we'd still have unpredictable chaotic patterns that would take longer to analyze than to let play out.

i find his argument an attempt to head off criticism for a circle of friends, avoid blame, and cya pr

Re: VC valuations – true, but not true. Under FAS 157, this is no longer the way it works. We now get to "subjectively" mark our valuations to market. Oh goody – as if introducing more subjective bias into the system will make the valuations more accurate. That said, your basic observation about the dynamics of VC pricing is definitely part of the the fuel for each up and down VC cycle.