The bursting of the bubble will hit all countries and all assets, with the probable exception of high grade bonds.

This prediction (April 2007) is judged against the next bust, which occurred within a few years (2007-2009). TRUE: in that bust, virtually all major risk assets fell substantially across virtually all countries: developed and emerging equities, real estate, commodities, and corporate and high-yield credit. High-grade bonds (top-rated government bonds such as U.S. Treasuries) held up or gained. MOSTLY TRUE: the decline was near-universal with only minor exceptions (a few small markets or niche assets), and high-grade bonds held up. MIXED: several major asset classes or major countries avoided significant losses, or high-grade bonds also suffered heavy losses. MOSTLY FALSE: the bust was confined largely to a few asset classes or regions. FALSE: no broad bursting of asset prices occurred within several years of the prediction.

Set before the research began.

1. E1 Diversification: A Failure of Fact or Expectation? AAII Journal (American Association of Individual Investors) · 1 March 2010

   “nearly all asset classes—be they U.S. or foreign equities, real estate or commodities—exhibited the glide path of a crowbar, slumping in unison, particularly during the final six months of the bear.”

2. E2 Diversification: A Failure of Fact or Expectation? AAII Journal (American Association of Individual Investors) · 1 March 2010

   “During the 2007–2009 global bear market, the S&P 500 declined 51% on a total return basis. Despite assurances that international equity markets had “de-coupled” from U.S. equity markets, the international developed and emerging markets declined by similar amounts.”

3. E3 Diversification: A Failure of Fact or Expectation? AAII Journal (American Association of Individual Investors) · 1 March 2010

   “Yet the muted 13.1% decline that this portfolio experienced last year was due to the 22.7% rise in long-term government bonds stemming from a flight to safety by global investors.”

4. E4 T51939-I003 (Pinnacle American Core-Plus Bond Fund, Management Report of Fund Performance) ScotiaMcLeod (Scotia Capital Inc.) · December 2008

   “Investment grade corporate bonds were down 5%, which represented the largest divergence of returns in the index’s history. High yield bonds performed even worse, down 26% for the year, largely in anticipation of increasing default rates and worse than expected recoveries.”

An independent review of the 2007–2009 bear market says nearly all asset classes, including U.S. and foreign equities, real estate and commodities, fell together (E1). It also says international developed and emerging equity markets fell by amounts similar to the S&P 500's 51% decline (E2). Credit fell as well: investment-grade corporate bonds were down 5% and high-yield bonds were down 26% (E4). Long-term government bonds, by contrast, rose 22.7% as investors moved to safety (E3). Together these meet the TRUE criterion: risk assets declined nearly everywhere and top-rated government bonds gained.