Stock Market Bubbles that Burst - Is anything new Today?

Wednesday, October 22nd, 2008 | local info

The public confidence crisis dejour - throughout history, markets have followed a crowd mindset.  The more popular a market becomes, the more individuals want to buy in, and the higher the prices are driven.

This mindset has occured throughout history and the cycles can be studied consistently.  Professor Watson teaches economics and the role of the market economy. Regardless of whether we want to evaluate recent technology markets which have Burst, these fluctuations are not original.  They have regularly occurred throughout time.

One of the most reported upon historical markets that broke was Amsterdam’s Tuplip market.  We can consider the Tulipmania of the tulip market that burst in 1637 as a popularly reported historical account of a economy that overheated.

Tulips were originally introduced from Turkey in the early 16th century.  As new “varieties” of tulips were introduced, competition intensified and their value soared.  One legitimately rare variety was the Semper Augustus which reached values in excess of 1,000 florins per single bulb in 1623.  This price was more than six times the average annual income.

This industry mania continued - and 10 years later the value had increased another ten fold.  At the market peak, the price of a single Semper Augustus bulb reached 10,000 florins - the value of what it cost to purchase a house in the middle of Amsterdam at the time.

Eventually the market peaked and there was no-one remaining who still wanted to acquire these tulips at such high valuations.  Within weeks, the market price crashed and thousands of people were left in economic ruin.

Throughout history - we have witnessed similar bubbles develop.  As the crowd continues to get more hyped, those contrary views become less and less popular to be heard.  Are any of the recent market bubbles any different?  In modern environment of politically correct speech, are the contrarian voices that speak up for character, ethics, and integrity any different?  Throughout time, these contrarian voices have been denigrated and ignored.  But the market for products and the market for ideas has a way of eventually correcting itself from the heat of the crowd mentality - and those extremist views tend to have their bubbles burst as the required correction occurs. Today’s market is no different.

 

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