Tag Archives: market bubble

a belief

a belief

The story is told of two men, who desiring to safeguard their riches, decided to conceal them by burial. One of the men selected an area below a tree, the other choose a place within his garden. Having selected places they deemed safest, both men went about burying their gold, silver, and jewels.

Time passed and soon proved both men had failed in the choices they made. The man who buried his treasures in the garden mistakenly assumed someone stole his treasures because he could not find them. However he had simply just forgot the exact spot where he had buried them. The other man who had buried his below a tree was unaware a thief was watching in the near distance. No sooner had he tamped the dirt and departed, the thief came and exhumed the treasures.

Both men continued on living under an illusion, one thinking he had plenty yet had nothing while the other thinking he had nothing but had plenty.

Earlier this year I mentioned in my post Shadow or Substance a term used in the financial industry known as a “market bubble”. Recently I was reminded of that when I read something Al Gore said regarding oil. Calling out fossil fuels he categorized them as a carbon bubble: “Bubbles by definition involve a lot of asset owners and investors who don’t see what in retrospect becomes blindingly obvious. And this carbon bubble is going to burst.”

The blindingly obvious – that statement stands out to me. We’ve both heard it and phrased it in other ways ourselves: “Hindsight is 20/20” or “If I’d only knew then what I know now”.  What is about the obvious that’s so elusive? Like sleight of hand, an act is carried out right before our very eyes yet something else had our attention.

Charles Mackay wrote a book in 1841 titled Extraordinary Popular Delusions & the Madness of Crowds. In it he describes the events that unfolded in Europe when the country was first introduced to the Tulip flower. Imported by the Turks, the tulip became an item of renown. As their fame spread, tulips became a status symbol and were considered a luxurious item. Some growers aiming to set their tulips apart began transmitting a virus into the bulbs. By creating unique color patterns, their bulbs would stand out from the rest. Everyone else caught on and moved in the same direction.

As time went on, contracts to buy bulbs at the end of their growing season were bought and sold. In his book, Mackay gives an account of people selling off or trading valuable possessions in order to participate in the Tulip market. At the height of Tulip Mania as it would become known, single tulip bulbs sold for more than 10 times the average annual income.

Today you can buy 10 bulbs for less than $6.00.

We shake our heads at the idea of masses being influenced by a flower. We laugh at the idea that an entire country could think something so temporal could possess such value. But how is it any different today? Our culture permits items with basic function and single purpose to net a return which generations before would scoff at. Purses, sunglasses, watches and a host of peripherals exceed the cost of cars, houses, or logical investments. Yet today society permits this and even celebrates it. Some prices are driven by inflation, some are driven by demand, and some are driven by ignorance.

“A fool and his money are soon parted”

A belief about something does not substantiate a reality…there may just be too many letters present.

Copyright © 2013 J.M. Cortés

Shadow or Substance?

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Emerging dream, may form now be told

Earnest move toward, only now behold

Ere substance is seized, shadow ensuing appears

Embrace the corporal afore the surreal

Essence as vapor will not apprehend

Ensure it be substance for shadow a tale spins

Substance o’er Shadow

 by J.M. Cortés

 In the financial industry there is a term known as a “market bubble”. Some may question its existence but just defining this “bubble” reveals an essence of this is true. Simply put, a market or economic bubble occurs when something is being traded on at prices inconsistent with its intrinsic value. Typically this is due to a perception or forecast on a particular trade which inflates its value beyond a reasonable norm. I remember witnessing a financial bubble ‘pop’ in the town I grew up in.

It all had to do with Emus, flightless birds that stand around 5 to 6 feet tall and weigh about 150 pounds. In the mid to late 90’s their value was expected to ‘soar’ and ranchers were adding them to their livestock count. Texas became the Emu capital of America with nearly 3,000 breeders working to create an Emu surplus. Driving the Emu Mania was an idea that their lean flesh would be the steak of tomorrow. But that idea quickly proved false; the bubble popped and thus the Emu wasted many a rancher’s investment. When reality set in ranchers and breeders, were the not so proud owners of birds that could not yield a profit. Unable to ‘do anything’ with them and unwilling to feed or care for them, many owners released their Emus by the droves into the countryside.

Ownership of these birds was not limited to ranchers or owners of large land areas. I recall seeing these birds in the backyards of residential homes. All kinds of visionaries at the start were ready to capitalize upon the great Emu. But when the bubble popped, no one needed or wanted them. Some killed their Emus while others just let them ‘run off’. When people saw them running down the highways or wherever, it was known why. One morning as I walked out to my car I heard the rapid footfalls of a large animal coming at me. I turned in time to see an Emu running towards me before it jolted off toward another direction. Truly, there is no degree of embellishment in what I have written. Today all that remains of the Emu Mania are some folks promoting (and selling I might add) Emu “Oil” for it’s medicinal benefit. Perhaps it is residual brain fluid from Emus euthanized by baseball bats? (That really happened too)

There are other examples that could be given concerning the infamous market bubble. But the crux of the matter is we should look for substance before awing over a shadow. People duped into pursuing “something for nothing” have been manipulated by shadows rather than influenced by substance. And all the “get rich quick” schemes have played out; those who fall prey to them have an unrealistic view of what defines value. Anything of true value has met certain criteria and is supported by established standards. Nothing costs nothing! Before a shadow can be cast, there must first be a substance to create it.

Without a doubt, there is a market for shadows and the multitudes have lined up to purchase them. Purveyors of the generic and counterfeit capitalize upon this by providing a substitute. Individually these will never garner the return true substance renders but a profit by volume awaits. As you are reading this, you might be thinking of generic versions of various products. While mainstream businesses manufacture their clothing line, beauty products, electronics, and etc. someone else is preparing an alternate version right behind them. There is not an industry that we cannot find a mainstream and generic representation. One has an appraisal that establishes its cost (Substance) and the secondary has a cost established because of the original (Shadow).

An allegory is the deeper purpose of this commentary; there is a dichotomy between Substance and Shadows. The valuable, dependable, and overall useful is found in the Substance. It is that which has been built with quality materials and purposeful workmanship. Going throughout life taking shortcuts and settling for the inferior is living in the Shadow. It may be cheaper and easily accessible but will it last? And remember, though there may be promotion of some great new thing it may be just another form of Emu Mania.

Every day we are constructing the life we live. We must exercise caution in selecting the material and tools we build with. Cutting corners and sloppy workmanship for the sake of speed or ease is foolish. Obviously what we are building we intend (or hope) to last. But its capability of lasting is dependent upon what we are using.

Copyright © 2012 J.M. Cortés