Confidence / complacency doesn't map the real world, in which liquidity dries up and markets go bidless.
Buying into a downtrend is known as "Catching the falling knife": the initial "Buy the dip" players have their head handed to them on a platter, and those on the sidelines decide not to try to catch the falling knife.
As every surge of "Buy the dip" players has their head handed to them on a platter, the market goes bidless-everyone who wanted to play "Catch the falling knife" has been burned, and those who have lost the "Animal spirits" to gamble stay out.
Stocks that had reached $60 per share were recommended as "Buys" at $45-a rational play perhaps, but wildly off the mark, as the stock eventually bottomed at $4. When sellers desperate to sell swamp buyers, prices decline.
Greenspan's models-and everyone else's-projected a rational market in which buyers continued to buy assets even as they lost money on previous attempts to "Catch the falling knife." In other words, the markets will always be liquid.
The Pavlovian "Buy the dip" reflex that was so profitable on the way up now becomes the road to ruin as every pop higher gets sold.
In the real world, humans panic and eventually decide to never again buy stocks or real estate, as the sting of their losses lingers far longer than their memories of glorious gains earned by riding the bubble higher.
https://charleshughsmith.blogspot.com/2024/07/the-downside-of-complacency-illiquidity.html
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