lynas and minsky bubble theory

Anyone who has followed Lynas for a few years can likely attest to the fact that this roller coaster ride has mirrored the pattern of speculative bubbles. If you analyze each stage of "Minsky's 5 steps of a bubble" you can see there has certainly been all of these factors displayed by the Lynas share price.

1. Displacement: Investors get enamored by a new paradigm, such as an innovative new technology (CHECK)

2. Boom: Prices rise slowly at first, following displacement, but then gain momentum as more and more participants enter the market, setting the stage for the boom phase (CHECK)

3. Euphoria: During this phase, caution is thrown to the wind, as asset prices skyrocket (CHECK)

4. Profit Taking: By this time, the smart money - heeding the warning signs - is generally selling out positions and taking profits (for example Lynas and Molycorp management) - (CHECK)

5. Panic: In the panic stage, asset prices reverse course and descend as rapidly as they had ascended. Investors and speculators, faced with margin calls and plunging values of their holdings, now want to liquidate them at any price (CHECK)

The incredible thing about Lynas however is that there was also actually never any real increase in the underlying demand for rare earths (end demand was constant throughout the big run up in share prices). Rare earth prices rallied not because of any real increase in end demand, but because of political reasons (which in hindsight were always likely to normalize). Therefore numerous people were sucked into this trade despite no increase in the demand for the end commodity all of these companies were selling, it was just temporary hoarding of the commodity.