Einstein Research — Market Bubble Risk Detector

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id: 'einstein-research-bubble' name: 'Einstein Research — Market Bubble Risk Detector' description: 'Evaluates market bubble risk through quantitative, data-driven analysis using a revised Minsky/Kindleberger framework. Prioritizes objective metrics over subjective impressions to prevent confirmation bias and support practical investment decisions.' version: '1.0.0' author: 'DaVinci' last_amended_at: null trigger_patterns: [] pre_conditions: git_repo_required: false tools_available: [] expected_output_format: 'natural_language'

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Market Bubble Risk Detector

Overview

This skill evaluates market bubble risk through a quantitative, data-driven analysis based on a revised Minsky/Kindleberger framework. It prioritizes objective metrics over subjective impressions to prevent confirmation bias and support practical investment decisions.

Core Principles:

Data over Narrative: Relies on measurable data, not just "it feels frothy."

Composite Score: Generates a score from 0-100 to quantify bubble risk.

Multi-Factor Model: Incorporates sentiment, valuation, leverage, market structure, and new issuance data.

Action-Oriented: Provides clear thresholds for tactical adjustments (e.g., raising cash, hedging).

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When to Use This Skill

Explicit Triggers:

"Are we in a stock market bubble?"

"Analyze the risk of a market crash."

"Is the market overvalued?"

"Should I be taking profits?"

User asks about "bubble risk," "market froth," "irrational exuberance," or "Minsky moment."

Implicit Triggers:

User expresses anxiety about high valuations or a rapid market run-up.

User is considering de-risking their portfolio.

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Workflow

Step 1: Execute the Data Collection and Analysis Script

The bubble-detector CLI tool automates the entire process.

bubble-detector run

The script performs the following actions: 1. Fetches Data: Collects data for each of the 7 quantitative indicators. - Put/Call Ratio (CBOE) - VIX Index (CBOE) - Margin Debt (FINRA) - Market Breadth (% Stocks > 200d MA) - IPO Issuance (e.g., from a public data source) - Retail Volume as % of Total - Forward P/E Ratio vs. Historical Average 2. Normalizes Indicators: For each indicator, it calculates a percentile rank over the last 5 years. A rank of 100 means the indicator is at its most "bubbly" level in 5 years. 3. Calculates Composite Score: A weighted average of the normalized indicator scores. - Sentiment (Put/Call, VIX, Retail Volume): 40% - Leverage (Margin Debt): 20% - Market Structure (Breadth): 20% - Valuation & Issuance (P/E, IPOs): 20% 4. Generates Report: Outputs a JSON file and a Markdown summary.

Step 2: Analyze the Report

JSON Output (bubble_report_YYYY-MM-DD.json):

Contains the raw data, normalized scores for each indicator, and the final composite score.

Markdown Report (bubble_report_YYYY-MM-DD.md):

Overall Bubble Score: e.g., "78 / 100 (High Risk)"

Indicator Dashboard: A table showing the current value and normalized score for each of the 7 indicators.

Key Drivers: Highlights which indicators are contributing most to the high score.

Historical Context: Compares the current score to levels seen before previous market corrections.

Recommended Posture: Translates the score into a tactical recommendation.

Interpretation & Recommended Actions

The composite score maps to specific risk postures:

0-40 (Low Risk - "Accumulate"):

- *Characteristics*: Fear is high, valuations are reasonable, leverage is low. - *Action*: A good time to be deploying capital and taking on risk.

41-60 (Moderate Risk - "Cautious Accumulation"):

- *Characteristics*: Market is healthy but not cheap. Some signs of optimism are emerging. - *Action*: Continue to invest, but perhaps with a greater focus on quality.

61-80 (High Risk - "Hold & Hedge"):

- *Characteristics*: Greed is prevalent, valuations are stretched, breadth may be narrowing. - *Action*: Hold existing positions, but stop new aggressive buying. Consider adding hedges (e.g., puts) or raising a small amount of cash.

81-100 (Very High Risk - "Distribute & Protect"):

- *Characteristics*: Euphoria, extreme valuations, high leverage, widespread speculation. - *Action*: Systematically take profits from high-beta positions. Raise significant cash (e.g., 20-40%). Actively hedge the remaining portfolio. This is the time to be selling to the optimists.

Important Considerations

Not a Timing Tool: This skill indicates *when risk is high*, not the exact top of the market. Bubbly conditions can persist for months.

Context is Key: Always present the score in the context of the underlying indicators. A high score driven by stretched valuations is different from one driven by extreme sentiment.

No Panicking: The goal is to make small, rational adjustments to risk exposure, not to sell everything in a panic.