TULIP mania, 1623. A single tulip bulb sells for a thousand Dutch florins, seven times the average annual wage. The average tulip trader makes 60,000 florins a month, 400 times the annual wage. Forty bulbs sell for 100,000 florins. You could have bought 3333 pigs for the same price.
People were selling possessions to speculate in the tulip market. One sailor ate a bulb with herring, thinking it an onion. It would have paid his ship's crew for 12 months.
Some tulip traders started selling tulips that had only just been planted. Others sold bulbs they intended to plant.
Gotta love those Futures Traders. They called it wind trade at the time, because that's all the tangible assets you had, thin air.
There has been a lot written about bubbles, and how to spot them.
Here are the lessons from 400 years ago. How to spot a bubble:
- Everybody is making profits.
- People believe the passion for forex will last forever.
- Your ordinary industry is neglected.
- Tangible assets are converted to cash to speculate in securities.
- Other asset classes are deserted.
- Luxuries of every sort rise in price.
- Assets are bought to sell, not bought for their return.
Let's apply this to the Markets today, to see if it still holds true
- Nobody is making money.
- People believe long-term investment is over forever.
- Everybody is concentrating on keeping their jobs.
- Everyone is trying to pay down their debts.
- Other asset classes are swamped (term deposits).
- Luxuries of every sort fall in price (discretionary retailing in a hole).
- Assets are bought for their return not to sell (income stocks favored).
All a bit simple, but there are other factors that suggest we are closer to a bottom than a top.
I will admit I stole the tulip story from a guy named Marcus Padley, it was so cute, that I had to re-use it. I hope Marcus doesn't mind since I am giving him the credit. Well done, mate.