The Beanie Baby Bubble of '99
thehustle.coThere's a great history of this, The Great Beanie Baby Bubble: Mass Delusion and the Dark Side of Cute by Zac Bissonnette. It's a quick read, almost entirely original reporting. Aside from the colorful characters, it's really compelling to see the way some individuals' and limited information combined with mass media fell together to create the bubble. It seems like it couldn't have happened at any other time because it needed cheap independent publishing (both print and web) before ubiquity eroded the perceived legitimacy.
Oh, bubbles can surely happen even in the era of widespread information. Look no further than housing.
A few points on housing:
- real home prices have now surpassed the 2000s peak
- household formation and population growth has been decelerating, while building has been accelerating.
- there are 1.1 homes per household, same as the year 2000. We are not at historically low supply as some claim. Only low in terms of active listings.
- mortgage rates are climbing at a historically fast pace... If inflation doesn't abate we can expect 5-6% mortgages within a few months. Rates were kept low due to the belief in transitory, but confidence in this is quickly eroding. Mortgages roughly correlate with 10y treasury which is at 2%, while inflation at 7.5%. typically these values are close together
- all in affordability will reach record lows within a few months, if inflation and mortgage trends don't abate
- there's clearly a mass FOMO/psychological phenomena going on right now. Buyers aren't acting rationally from a financial perspective
Home prices can avoid a correction if we quickly return to 0 or negative rates, which could happen. If inflation persists, they will correct in a big way within a year or two as rates adjust to inflation
Sources:
https://fred.stlouisfed.org/series/QUSR628BIS
https://fred.stlouisfed.org/series/UNDCONTSA
https://fred.stlouisfed.org/series/SPPOPGROWUSA
https://www.mortgagenewsdaily.com/mortgage-rates/30-year-fix...
EDIT: And the fervent denials that it's a bubble is surely a hallmark of bubbles too :). Please refute with actual data if you disagree
Whether or not housing prices are in a "bubble" in the sense that the prices are going to correct and drop at some point, they're not a bubble in the Beanie Baby sense of seeing 10000% price appreciation in the span of a few years. Nobody's 4-bed condo is selling for $500 million. There needs to be some acknowledgement of the gap between probably mispriced and tulipmania. Conversely, if prices correct, they're still going to be back where they were in another decade because houses have actual value. You're never going to see a bag full of 150 4-bedroom condos being thrown away on an episode of hoarders because the owner can't even sell them for a few bucks each. There's a difference between "price is going to drop a bit for a while" and "will totally collapse and be worth marginally close to zero dollars for the rest of time."
I really appreciate this comment. The $1M house I bought last year at 2.75% (now supposedly valued $1.1M) might go down to $600-700k if we have some kind of major correction, but it's in a desirable area and never going to zero. I'm prepared for it to drop, but over the long term I expect to be fine. My house is a place to live for the long term, not something I'm looking to day trade. The only day I care what it's "worth" is the day I need to sell it. Thinking of your primary residence as a speculative investment seems so strange to me.
If you buy something that is comfortably affordable for you now where you're willing to stay for the long term, with a fixed rate loan, I don't see the benefit of waiting until the peak comes. I'd rather be building equity than paying rent waiting for the market to peak. People have been predicting another crash every year for the last decade, and I'm sure it will go down again at some point, but I wouldn't plan my life around anybody's ability to call the top accurately. Just buy what you can afford and get on with your life.
Having equity can be important for:
1) Cash out refis. e.g. if you want to renovate, purchase a rental property or better yielding investment with the funds. Say you can take out cash at 2% rate, and buy a SFH rental with a 6% cap rate... you can build net worth faster (at more risk)
2) Being able to move without writing the bank a check. If you're underwater, you will have to pay out of pocket to sell, and then save a new down payment. If you don't ever plan to move, then this doesn't matter.
I consider valuation before purchasing property, rather than just whether I like it. But many don't, and that's fine too.
Commercial RE will definitely be driven by the fundamentals though, so I'm sure we will see cap rate expansion there unless rates begin to fall again. Residential can move out of line with fundamentals, for sure
I think it makes sense to have a different approach for your primary residence vs your real estate investments. If I were a real estate investor, I probably would be hoarding cash waiting for deals, licking my chops at the prospect of another housing crash.
Something with intrinsic value will never collapse to 0. A bubble to me is real prices far exceeding intrinsic value, particularly driven by psychology rather than fundamentals. Housing fits the bill to me.
There's a good argument that crypto presents similar to beanie babies, given that there is no intrinsic value to the coins themselves.
People buy crypto because they think they can sell it to somebody else for more later, not because it unlocks some value by holding it. But don't want to sidetrack the discussion.
Sorry, I think I'm not following.
I think you're saying that housing prices are too high. Then you're saying that if inflation continues housing prices will drop?
I totally get that most home sales are based on the monthly mortgage bill, so when interest rates are high, house prices are lower. But, if we have 7% inflation why wouldn't rates increase AND prices increase? I don' think the outcome is obvious when high inflation is coupled with high rates - though I'm sure there are several experts ready to jump in with information about how the US 70's and 80's worked :)
It's a common misnomer.
Inflation is good for assets once those assets have been valued using an inflation appropriate discount rate. Housing rate now is priced based on a 2% discount rate, not 7%.
After the asset is priced appropriately for the current discount rate, then inflation is good for valuations.
Median wages drive home prices in the long run. It's possible home prices can be sustained if we see median wage rapidly gain over the next few years. Gasoline going up and driving CPI inflation doesn't make housing more affordable. Only increase in incomes/buying power.
Example: the 10y treasury was recently at 1%. If you bought that as an inflation hedge you would have lost a lot of money. Once people realize inflation is here to stay, they won't accept lower rates of returns.
Now it yields 2%, and soon likely 3%. Holding cash is better than holding a treasury during the repricing phase. Same logic applies for other assets.
Real home prices were super low in the 70s relative to today. Also wage inflation was very strong. I believe wages doubled over the decade. That alone implies a 2x gain in prices ignoring changes in discount rates. Not the same at all.
When the Fed starts raising rates to try to counter inflation we'll see mortgage rates follow. If mortgage rates go up to, say, 7% (pretty close to the average mortgage rate over the last many decades) that's going to impact the monthly payment. If people are just barely able to afford a house at a certain price with 3% mortgage rates, they're not going to be able to afford it at 7% - it all comes down to monthly cash-flow. As fewer people can afford to buy at current prices with higher rates that limits demand at those prices and something has to give - either prices will fall to accommodate, or the market will just stagnate. Even so, a stagnant market can only last for so long before some sellers start lowering prices because they have to.
This is essentially what happened in the early 80s when we had mortgage rates in the upper teens. If you look at home price sales history during that era there were some quarters where average selling price went down 10% or more.
I vaguely remember knowing that we had a mortgage rate of ... 16% when I was a kid (we moved in 1982). But ... it was a direct note with the previous owner, and when rates fell, they wouldn't refinance at a lower rate. And it was hard to get a bank to lend because we were relatively close to the edge already, financially (it's been.. 35+ years - I'm getting some second hand stories through family). When I first bought a home in the late 90s with a mortgage, I think it was around 8% which - didn't really feel high or low, as it was my first. I just refinance last fall at 2.75%. Insane.
It is crazy how much rates have fallen. But the historical average for mortgage rates has been around 5-7%. The 70s in particular had very bad inflation that was pretty abnormal relative to history.
Also important to note that rate only matters in the context of price. Rates by themselves don't provide you much info. e.g. 0% on 10 million is still expensive, just as 1000% rate on 1 dollar is pretty cheap
We'll find out in a couple of quarters or so if this inflation is "sticky" or just a temporary result of the pandemic. My feeling is that it's mostly the latter, but it's important to note that there were already inflationary trends in play prior to the pandemic - the push to return more manufacturing to the US and the resulting trade wars, for example, were going to lead to some inflation. If this inflation proves to be "sticky" like the 70s/early 80's inflation then we're likely to see some relatively high mortgage rates for a bit. Probably not as high as they were in the early 80s, though.
We'll see. I was pretty sold on the transitory belief earlier, and while I believe there are transitory components, like car prices, I expect core/wage inflation to continue.
We had an almost 9% annualized wage gain last month using the MoM numbers. Unemployment is too low right now for core inflation pressures to abate, unless we have a recession or similar drop off in employment IMO. I think a lot of these core economic principles were forgotten due to how high unemployment went after GFC and how long it took to reach full employment once again.
It looks to me like we've entered a wage price spiral... but certainly it could play out in a number of ways. Perhaps the Fed will use falling nominal CPI YoY numbers to hide the structural inflation that has developed. That could keep rates artificially suppressed for another year, if they're able to convince markets of it.
Due to base effects, CPI is likely to peak either in Feb or March. But it would be premature to extrapolate a fall from 7 to 6%, for example, as evidence that structural inflation hasn't taken hold.
I expect inflation to persist around 4-5% longer term, absent intervention by the Fed... which still brings us to 6-7% mortgage rates.
Prices will stay high as long as buyers are not paying out of pocket. Once they have to pay more out of pocket with rising mortgage rates, they will notice that they weren't able to afford it in the first place and people will need to get rid of what they can't afford to keep paying.
I don't know about the US but the next move in the UK is to deregulate lending criteria. Allowing more people to borrow 5-6x income with tiny deposits.
People have always over extended themselves here to buy property.
They should tighten rather than deregulate. Tightening would result in lower prices as well.
If a 20yr mortgage suddenly became the only option, prices would decline in a big way. Of course, things might go the other way with 40yr mortgages etc
There's another factor going on in housing right now, which is corporate home ownership. There was some pressure on the market when landlords moved from long-term rentals to short-term airbnb style rentals. But last couple years saw an influxed of "iBuyers" like Zillow and OpenDoor. These companies have been purchasing homes at above market prices - which tends to move the market price in the process. Their goal was to get inventory without much regard for profitability.
https://www.cnn.com/2021/11/08/homes/zillow-ibuyer-homes/ind...
> while building has been accelerating massively
Nope, we have a decade of underproduction that led us to this crisis
Builders have been working as fast as they can (and sometimes faster than they should) around here non-stop since maybe 2011 or 2012, and it's not enough. Tons of new neighborhoods, probably half the apartment buildings I know of were put up in the last ten years, and so on, but house prices and rent are nuts and still increasing faster than inflation anyway.
We're at the end of what sure looks like about a decade-long housing construction boom, in my city, which is not trendy or growing very fast, and prices have done nothing but go up at 2-5x the rate of CPI the entire time. It's possible the under-supply was so bad that all the construction still isn't enough to catch up, but then why did prices not start higher than they did? I find it hard to believe that this city's gained new residents faster than it's gained new housing. Something else is going on.
> Something else is going on.
Growth.
In the last 40 years, the US population has picked up 100 million people. 227M vs 329M [1].
By 2050, the US population is estimated to be 379 million (+50M), and by 2100, it will be 434 million (+ an additional 55M) [2].
That's a lot of housing need to fill.
[1] Google "US population"; I'm not sure if these figures includes those here on non-permanent visas, but if not, it would probably increase the growth even more.
[2] https://en.wikipedia.org/wiki/Projections_of_population_grow...
Do you think education could also be a factor? More university degrees than in prior decades leading to relatively fewer people with low wages in cheap apartments and more high earners desiring luxurious housing, which takes more material and labor to construct? And of course the pandemic generated a desire to get into less-dense spaces with home offices.
Households to number of homes built is exactly the same as it was in year 2000. You can compute it yourself using FRED data.
1.1 homes per household (or vice versa).
People who count from 2010 are cherrypicking the underbuilding decade while ignoring the overbuilding decade, 2000s.
There is no "shortage" of homes, there's a shortage of homes listed currently.
Couldn't there also be a shortage of homes where people want them to be? A house in the city and a house in the boonies are not exchangeable
That could apply to some local markets, sure. But we are seeing massive price increases rather universally, which implies it's a more widespread phenomena than just local undersupply.
But it will be true for certain markets. Most homebuilding is concentrated in the SMILE states (southern, areas where people are migrating to)
I don't see the data about 1.1 homes per household in your links. What is accounted as a "home" whenever you are taking this number from? Given that the rate of home ownership is about 65% it is probably counting rentals, unless an average household owns 1.7 houses.
On the other hand, https://fred.stlouisfed.org/series/COMPU1USA shows that the number of SFHs completed in 2021 finally reached levels of 1994, when population had been 100M less than now. I might be just too dumb to see where there are enough houses.
Total Households: https://fred.stlouisfed.org/series/TTLHH
Total Housing Units: https://fred.stlouisfed.org/series/ETOTALUSQ176N
Divide one by the other to get housing units per household. You can see ratio in 2020 is roughly the same as 2000.
You have to consider multifamily construction too (which can include SFH-like duplexes, or full apartment buildings). Housing is fungible to a certain extent. If rents fall, that will reduce demand for purchasing and vice versa.
Completions is a backwards looking metric. Look at pipeline, not completions to predict forward trajectory. Housing in pipeline now matches the 2000s peak, and looks to surpass the 70s peak within a few months
Okay, so it does include rentals and the number seem pretty normal - the ratio of units to households will always stay close to 1.
And yes, the housing is fungible to an extent: the dearth of SFHs cause the price of SFHs to rocket and pushes the rest of the market up as the people who are priced out of SFHs can as well go and buy a condo or a townhouse.
Yeah, but SFH aren't the only housing type appreciating. This theory doesn't really hold when you consider both Condos, inner city locales, rural locales etc have also experienced rapid price appreciation.
Rental or not doesn't really matter. Fundamentally people just need a place to live, and depending on locale will make the tradeoff between renting and buying. If rental stock doubles overnight, housing prices would decline too, as cost of a mortgage becomes relatively less appealing. In this sense it's fungible.
But it's true there may be some subset of people who would only buy SFH regardless of price
>Yeah, but SFH aren't the only housing type appreciating. This theory doesn't really hold when you consider both Condos, inner city locales, rural locales etc have also experienced rapid price appreciation.
What theory? That people who are priced out of SFH buy condos, townhomes and other type of housing? What do they do, keep renting and enjoy 30% yoy rent bumps instead?
No, I think we are in agreement. I may have misread your post.
People priced out of one housing type will bleed into others.
Has building been accelerating in the areas where people want to live, though? e.g. lots of Californians wanting to move to MT or ID, but is building catching up there?
Most building is concentrated in the migration destinations. You can find the breakout on the FRED website for different metro areas.
I would be particularly concerned about sustainability of prices for places like Boise or Phoenix. Lots of building there, and prices are far detached from local median wage.
Also lots of land and few regulations preventing further building.
Phoenix was one of the places hit hard in GFC. Prices fell 50-70%
Are people making that move because they prefer the location if their current location had enough housing? I guess more "Are they moving b/c the building is happening there and not in CA?".
As someone who just sold their home and is currently renting while waiting for a correction, I definitely want this to be true. Why are you confident those factors, absent a rate intervention, will produce a correction?
If inflation persists rising mortgage rates will push affordability to record lows. We're already close
If inflation abates quickly, then current prices can maintain and become the new normal.
The rate shock will price out pretty much every primary buyer. Investors will stop buying and even sell if they fear it's a peak.
On top of this, huge amount of backlogged supply is about to come into market in a big way in southern cities. The majority of the building is concentrated there. I would be very worried about Phoenix for example
Why wouldn't housing prices drop if the mortgage rate increased and keep affordability about the same?
Sure, it could. But it's better to buy a lower priced item at a higher rate.
Just look how that worked out for homebuyers in the 80s paying 10%, who were able to refi at 2% later down the line.
What is your argument on mortgate rates? That lenders will be unwilling to lend out at (still low) central bank rates due to inflation? I don't follow the reasoning.
Mortgage rates historically track the 10y treasury rate. This is market driven, not Fed driven (outside of QE impact)
10y treasury yields 2% while inflation is 7.5%. Ergo mortgages will almost certainly run to 5-6% within a few months once the market perceives that inflation is not transitory and start selling off the 10y treasury en masse.
We have seen this move already starting. It's why mortgages have run from 3-4% in just two months. But not even close to pricing in inflation.
Mortgages were 5% in 2018 when inflation was significantly lower. We may even get to 6-7% in a shorter period of time
Fascinating. Thanks for the info. I'm in northern Europe (Norway), and very curious how this could spread east of the Atlantic. Historically, our central bank has given everyone the impression that they decide the mortgage rate, but history has shown that foreign rates have much higher impact.
In the previous 20 years, whenever rates have spiked abroad, the central bank has made interventions to prevent domestic rates from going up. But those interest rate spikes have been transistory, so I have no idea how things would play out this time.
Also Beanie Mania on HBO, not as insightful as the book but still a good documentary. The Beanie Baby bubble was essentially a textbook example of mania.
This leads to a pretty interesting comparison between plain cryptocurrencies and NFTs.
Cryptocurrencies are beanie babies: Once available for a trifle, their value has ballooned based on speculation. But that already happened, you missed out on it, and it has no bearing on their future prospects. And if a bunch of people ever feel the need to cash out at once, they'll find out just how much value they really have when there's nobody buying.
NFTs are Collector's Edition items: Their original purchase prices are artificially inflated (normally by distributor's decision, for NFTs by wash trading). An association with some pop-culture property or pretty artwork attracts eyeballs to it. You could buy it, or you could just get the regular edition (which, for online artwork, is free.) And the price they're available for doesn't necessarily have anything to do with what you'll be able to get for it.
With Beanie Babies, you actually own something. You might not be able to sell it for what you paid, but you still have something to display or give away. With NFT, you own a URL to an image, but you're relying on the NFT marketplace to maintain that. You're not buying the artwork itself, but some token related to the artwork.
I think a better comparison for NFTs is a star registry. You pay a company to name a star after you (or someone else as a gift). That company will provide a star locator chart and publish a book each year with all the star names they registered that year. You don't own the star, but you do own an certificate saying the star is named after you. Unlike an NFT though, you can't transfer the star registration to someone else.
Yeah, the star registry comparison is common, and a good explanation of how NFTs work. I'm more trying to explain how their price works, and what forces drive their increases.
Bitcoins' price increase is driven by scarcity and speculation. NFTs' price increase is driven partly by speculation, but also by the appearance of speculation, a series of wash trades of increasing value that seem to outsiders to be actual people buying the item for increasing prices. The buyer doesn't know that those were all one person trading with themselves, so they expect that, even if they can't sell for a profit, they can still sell for a minor loss. Then, once they buy it, one of two things can happen: 1. They ride off the hype wave from the original seller, and build it up some more themselves, then find a bigger fool to flip the NFT to; or 2. They keep it a while, the hype wave dies down, and if they ever look to sell it they'll find the real level of demand is way below what they were expecting. Either way, the house gets its cut. It's all a gold-brick scam.
To play devil's advocate, this is a thing that could have said various times in the past 12 years as each previous peak look like "the bubble that you missed out on".
Also, financial instruments work differently from physical assets; if you have conviction that the peak has already happened ("the bubble happened, and there won't be another one"), you can take a bet against the price by shorting.
Of course, this leads to very different kinds of market dynamics which aren't directly comparable to the beanie baby bubble. Too much pressure on the short or (with leverage) long side can lead to liquidation cascades which result in very dramatic price movement. On the short side this would look like a short squeeze as a large fund can buy a bunch of the crypto to liquidate shorts, then sell it after the market moves at a profit.
> you can take a bet against the price by shorting.
John Maynard Keynes said, “the markets can remain irrational longer than you can remain solvent.”
I think it's apples/oranges. Beanie babies had your average joe mobbing the stores black friday style. Even grandma was in on it. With NFTs, everyone is talking about them, but few folks have gone so far as to buy one relatively speaking.
> Cryptocurrencies are beanie babies: Once available for a trifle, their value has ballooned based on speculation. But that already happened, you missed out on it, and it has no bearing on their future prospects. And if a bunch of people ever feel the need to cash out at once, they'll find out just how much value they really have when there's nobody buying.
Can you describe the situation where nobody is buying? People may abandon Bitcoin but some sort of crytocurrency will be used by criminals. I am unable to imagine a future where Cryptocurrency does not exist. I am curious what you imagine will happen to crypto that it will be useless for criminals.
Strong regulatory action that shutters most or all "legitimate" fiat offramps.
I suspect the vast majority of players, even in a criminal marketplace, are seeking cryptocurrency with the intent of cashing it our to fiat, or trading with someone who-- after possibly more exchanges-- cashes out to fiat.
Close the offranps, and the supply chains dry up.
The criminal buyers' plan is to buy bitcoin, maybe shuffle it around a bit to hide their tracks, and sell it as soon as they can. They don't want crypto, they want cash, and they need buyers to get that cash. That goes for everyone, in fact. The only way criminals are different is that they don't want higher prices, they want high volume, so they can sell it fast without losing too much.
A unit of cryptocurrency is a nothing. If you never sell it, it's useless and worthless. Everyone buying crypto is planning to sell all of it. They always need more and more buyers to keep driving the demand up, to in turn keep driving the price up. Eventually, there'll be a time when there are too many sellers and not enough buyers. Maybe a major recession hits and people decide it's a good time to cash out/bad time to make risky investments. Maybe regulation starts scaring people away. Maybe mainstream news coverage turns hostile. Regardless of which, people rush to sell, and as the buyers dry up, they start taking whatever price they can get. The price plummets. Sell orders accelerate. Line goes down. Pop. Then, stories of people losing everything circulate widely, cementing its reputation as worthless and scaring off any speculative buyers forever after. Just like Beanie Babies.
Just like Beanie Babies, there'll probably be some buyers and sellers forever. Just not at a high enough volume to make it worth a criminal's time.
> And if a bunch of people ever feel the need to cash out at once, they'll find out just how much value they really have when there's nobody buying.
This is a nice natural mechanism for the bubble to burst itself. Housing is not like this at all. Everyone can in fact get cash all out at once at the hyper-inflated prices (no real buyers needed!) by just doing a "cash out refinance" to the bank.
I explored this idea last year in a blog post
I still have a visceral reaction to seeing Beanie Baby's actually be played with. I had young cousins that were into "collecting" them in the 90s, and remember part of it was keeping the tags and not playing with them.
Now I have young kids that immediately yank the tags and carry them to school. I have nieces that have outgrown their's and have passed them down to the family dog as a chew toy. Both give me a moment of 'aaah aaah!' before I can make my rational brain remember they're just a $5 stuffy that once had a bubble.
Relevant portion of the article:
"According to economists David Tuckett and Richard Taffler, we often view a hot new financial opportunity as a “phantastic object,” or an unconscious representation of something that fulfills our wildest desires.
These objects are “exciting and transformational.” They appear to “break the usual rules of life and turn aspects of ‘normal’ reality on its head.” They promise something far departed from the market’s typical behavior.
During a bubble, we formulate a “collective hallucination” of prosperity, and fall victim to groupthink, a phenomenon where “a significant chunk of society feverishly buys into a shared dream” and ignores reality."
I think the most relevant portion of the article is:
"There was one person who emerged handsomely from the Beanie Baby bubble: Ty Warner.
Aside from getting caught secretly hoarding $107m of his Beanie Baby riches in an offshore Swiss bank account, Warner has kept a low profile over the years — but he’s quietly amassed a fortune the size of Djibouti’s GDP.
Today, the 73-year-old Beanie Baby inventor touts an estimated net worth of $2.7B, good for the 887th richest person in the world. He owns a fleet of luxury cars, a $153m estate, $41m worth of rare art, and the Four Seasons Hotel in New York, where you can rent the “Ty Warner Penthouse” for $50k per night."
I did some tech consulting and dev work for them around the peak of the craze. I never met Ty personally, but was in their office multiple times. One Christmas (98?) everyone got a bonus of their salary, IIRC. The money was just... pouring in at that point. I'm sure it's died down since then, but the stories were... nuts.
I think we worked at the same place? Office in the suburbs moved to downtown near the train station, foozball table in the kitchen and green carpets? Coldfusion app running on Solaris gear.
I seem to remember the office I visited was in Rosemont...?
Rolling Meadows perhaps? I think the Ty craze was wrapping up when the dev shop moved downtown (right before the dot com bust).
westmont. I knew there was a 'mont' in is. chestnut avenue...
Small world!
"$41m worth of rare art"
That bit at least is rather amusing.
He could sell NFTs of it and burn it, and double his money!
You're thinking small. You sell raffle tickets to let someone burn the artwork and pocket the profits from that too. Bonus points if there's a sponsor of the event.
Lot of people making comparisons to crypto / NFTs etc. Looking at it from another angle, what are the best examples of things that lots of people thought were bubbles, but turned out not to be?
This is going to sound ridiculous, but ecommerce? Between the .com crash, and a few high-profile failures like Kozmo, Outpost, and Pets.com, there was definitely an era of skepticism about the whole idea. Also keep in mind Amazon didn't show a profit for the first 10-15 (?) years. They had a decent reason for it (reinvesting it all back into the business) but they took a lot of criticism for it.
Was there ever a serious belief that ecommerce was a bubble? At least in the case of Pets.com they were doing things like free shipping and selling products for 1/3rd cost to try and increase their customer base. It was not sustainable. Mail order catalogs (the analog analog to purchasing through online stores) had been a major driving force in commerce for well over a century by the time ecommerce got started. As a model, ecommerce had something well-founded to draw on at least.
I thought housing was a bubble in 2005.
But the prices keep on going up.
In many places there was a pretty serious correction in 2008, no?
Bubble doesn't mean "pops and value goes to zero". It means something more like overvalued asset class that can lose value rapidly. If there is intrinsic value, it won't got to zero. Nobody imagines that of a real estate market outside scenarios that include major wars, etc.
House prices with any sort of scarcity are largely driven by peoples ability to pay (i.e. finance the debt).
Yep, I got my house at almost 30% off it's new price and now it is worth 4x what I paid for it in 2009
Ummm... It was a bubble in 2005/2006 and prices corrected pretty significanlty from 2007 till about 2013. We bought our house in 2010 (not quite the bottom of the market here) for $186K - 2.5 years earlier a similar house across the street sold for $250K. A similar house on the next block sold for $575K in recent days. So yeah, it was a bubble that burst and now has re-inflated to even higher levels. If mortgage rates simply were to revert to mean (about 7%) that will negatively impact prices. If they overshoot (The Fed could find that inflation is tougher to fight than they thought) you'll see a buying opportunity again. Look at some home sales stats from the early 80s when mortgage rates hit the upper teens.
Prices will never stop going up if your unit of account measuring stick never stops shrinking.
Magic the Gathering cards probably
Social media stock?
If NFTs changed their image (can totally do that in most implementations, there's no hash of the contents) to an advert and made a lot of money, are they a success in a way that disproves a claim they were a bubble?
I'm not really stating an opinion, just an observation that tonnes of social media companies died until the current 'in' ones adopted advertising and (so far, and for longer already) lasted.
But everyone knew social media would pivot to ads. It was baked into their valuation during the alleged bubble.
I was 1000% on team facebook/snap/twitter is a bubble.
My son learned SO MUCH from 3d printing and selling fidget spinners.
Bulk purchasing skate bearings, charging 3 times as much for the same plastic because it had different colors…and the STEM school really couldn’t do much, because that kind of thinking was in their charter…plus, you know, distract the hands while keeping their brains engaged.
I’m not a crypto evangelist or anything, but what about alternatives like Pokémon cards which seem to have increased in value over the same period.
There’s currently a pump and dump on retro video games but I don’t think the same supply issues exist in Pokémon cards, but I’m not actively monitoring either market.
I think part of it is Pokemon and MTG are franchises with fan bases that exist outside of the desire to speculate on them as investments. So there will always be some fans who want to collect them just to have them, and not in the hope of selling to a greater fool. There is enduring demand.
Beanie Babies, on the other hand, only existed for the purpose of get-rich-quick speculative bullshit. Ok, some kids played with them but I remember adults admonishing kids not to damage them and ruin their value. Is anyone actually nostalgic for these? I was 7-10 during the craze and I don't care about them, or know any peers who do. I mean, many of us weren't allowed to play with them.
Another factor is scarcity. Many old cards were played with and damaged, so to have a first edition mint is actually rare. Whereas I'm sure there are (still) 100,000s mint condition Beanies in plastic storage bins in attics across the US.
Finally, some of them were actually special and deservingly command a high price. Black Lotus was a really powerful card in addition to not being printed anymore, so there is another reason why it's sought after. It's so overpowered and game-breaking it won't be reintroduced. Patti the Platypus is not manufactured anymore, but there is nothing special about it anyway. And even if Beanie Babies were to become popular again, who is to say they won't just make another platypus.
The difference is whether the market is ultimately driven by people who want to own things or who want to flip things. It's not black and white, but I bet <1% of people who bought Beanie Babies wanted to own Beanie Babies, and at least 50% of people who buy collectible Pokémon cards (or baseball cards, or comic books) actually want to own them. For the people who actually like Beanie Babies, the market for them isn't terrible, it's wonderful. They can afford everything they want.
A market of flippers (like Beanie Babies) has to terminate at bagholders. While you can also lose your shirt in a collectors' market, it's because they're driven by the tastes and disposable income of those top-level collectors. They tend to shift from area to area based on particular books, articles, or even influential threads on message boards, and those markets move as a whole with wealth inequality and against interest rates, like fine art.
I think the difference between Beanie Babies and Pokemon/Magic cards is that trading cards hold some sort of utility outside of existence.
There's a game behind the cards. And certain cards increase your chances of winning.
This is an ex ante explanation, because it doesn't apply to (canceled) stamps, which are valuable and have been for a couple centuries.
Well, yes. I was speaking to those items specifically. I don't think those cards are worth anything without the game.
Not everything stems from the same reason.
"There’s currently a pump and dump on retro video games but I don’t think the same supply issues exist in Pokémon cards, but I’m not actively monitoring either market."
Can you clarify what the pump and dump on retro video games looks like? To me, there seems to be real demand for retro video games. You can see the interest in various subreddits.
Sorry it’s a long watch. The tldr is that people involved in several high end sales, and game rating and auction houses are known business associates creating a conflict of interest and inflating sale prices artificially.
Thanks. This is very informative. I think growing collectible markets will always be susceptible to shill auctions.
That guys channel is very cool, I’m not into speed running but the way he breaks down bugs and cheats is very interesting, he also occasionally stabs at stuff like this where his thoughts are very well thought out, I’ve never checked his sources but I assume they’re legitimate.
Many parallels with what is going on with NFTs right now.
"Collectibles" bubbles have been a feature of (at least) American society for many decades. The tendency of some people to fall for marketing that describes some mass-market junk as an "investment" or "collectible" and to think they're really getting in on something good, is documented in Fussell's Class, so it was already a recognizable trend by 1983.
[EDIT] This is distinct from, or a useful subcategory of, some other "manias" or bubbles chiefly because the effect is often deliberately cultivated by a manufacturer or trade group, and the goods are mass-market in price and quality and lacking in (meaningful) natural constraints on supply. Think Franklin Mint junk on the Shopping Channel, or Precious Moments, or early '90s Topps cards. Pop-culture themed dinner plates intended only for display. Or Beanie Babies.
except 1000x bigger. ppl are spending hundreds of thousands of dollars like it's nothing.
It's easier to spend money when purchasing things with a credit card versus cash. Or, users are more likely to make in-app purchases when it's with pre-loaded Robux or V Bucks rather than dollars.
There's got to be something like that at play here with ETH/BTC. It's so much easier to spend it when it's hard to put into perspective just how much physical cash the purchase represents.
They're mostly probably not.
https://www.nbcnews.com/tech/security/nft-sales-show-evidenc...
That's a total volume number, not a market cap.
If you want to see some market caps[0] they're still staggeringly high for what they represent, but beware: you can't see the demand curve on a price history chart. There's no way of knowing how much of the market could decide to sell before they ran out of buyers. Market caps are used to estimate value on wall street because it's imagined that the number of people who would want to buy MSFT today for $1 less than the price today are inexhaustible.
That's much closer to the truth on the NASDAQ than on whatever exchange people are using to trade their beanie babies.
That's just NFTs that are on SOL (Solana) chain only.
The reserve bankers would look at stats like that and just shake their head at the money wasting away.
I call bullshit. We're supposed to believe people have invested almost $20B in NFTs? I have no data one way or the other, but this fails the smell test.
yes, thats really the marketcap for em. It's crazy, I agree.
Only really rare cool limited edition collectible shit is worth it. Like cars that Jay Leno collects.
I remember being in grade school while this was happening and a girl was explaining to me how it worked, that such-and-such Beanie Baby was being "retired" and only a few thousand of each one was made. I just didn't get it. Why wouldn't they make more? I mean it's not like we're going to run out of polyester and plastic pellets anytime soon. Not to mention the company itself doesn't benefit if they appreciate on the used market. Why would they leave all that money on the table by deliberately making less than people wanted?
There were also rumors going around that the whole thing - production of all Beanie Babies - was going to end in the year 2000 which actually turned out to be very briefly true before it wasn't anymore.
As an adult I was smart enough to miss cryptocurrency 10 years ago because I thought it sounded like Flooz.com or Beenz. Magic internet money you can earn by solving sudokus? Who the hell wants that? I then missed NFTs (won't they just right click?) and now I'm too scared to get in for fear I will end up as the bag holder.
I'm probably going to end up learning the wrong lesson from this and throw fifty bucks into every crazy-sounding scheme I come across from now on in hopes one of them will hit it big. But that's not so different from venture capital. Just on a smaller scale.
If I had $5 for every Beanie Baby my kids had…. Wait - I did.
My ex-wife and I divorced in 1999 during the height of the craze. She was an avid Beanie Baby collector and I gladly let her have the entire collection in exchange for a quicker divorce.
Thank goodness you didn't end up like this ex-couple, forever memorialized on the internet:
https://www.huffpost.com/entry/beanie-baby-fever-in-1999_n_5...
(Article is about picture of two divorcees dividing a Beanie Baby collection on the courtroom floor in front of the judge.)
Poor Beanie Babies, but what about other investments you can hug?
https://priceonomics.com/when-the-great-alpaca-bubble-burst/
If you are curious about asset bubbles, how they form and how they unravel, I would suggest you read Hyman Minsky's "Can 'It' happen again?".
If only we had gone all in on Beanie Babies. We cleared $20K+ selling BBs on the side of the road that year. I wanted to spend our whole savings and hire people to sell them for us - we were buying them out the back doors of Hallmark stores. Wife didn't. But we still made enough to put down a sizable down payment on our current house.
It was a crazy time. Crazy people fighting each other for cheap stuffed animals.
How were these plastic beans even considered child-safe?
Or world safe. There was a huge thing in 2000s up to 2015 or so with tiny little plastic beads in soap that will forever contaminate the water supply and soil it ends up in, and I think it is still legal. Glitter, which is also tiny pieces of plastic, is still legal.
Yeah but they didn't have ape beanies.
Ahem. Bitcoin! *cough*
The article mentions Bitcoin!
The current state of NFTs etc. amazes me in the context of Beanie Babies.
So many people have learned nothing. Granted the time gap means these are entirely new people making those mistakes.
We have such a degraded level of discourse now that if it were used in the Beanie Baby craze there would be people arguing about whether all soft toys are evil.
>So many people have learned nothing.
I would argue considering the plethora of NFT offerings both legitimate and plagiarized that many people learned trying to manufacture the next Beanie Baby is better than investing in them, sort of like selling shovels in a gold rush is more reliable than digging for gold.
The difference is that stuffed toys have value independent of speculation.
True in the ones to dozens of dollars. I remember in the Beanies Baby era they were going for hundreds or thousands though.
I actually knew somebody with an extremely valuable collection in the late 90s whose house was broken into. Only the BBs were stolen, which speaks to their value being well beyond that of regular stuffed toys at the time.
Are you saying that my monkey jpeg is not worth 350,000 US dollars?
You mean your arbitrarily sanctioned title to the publicly available monkey jpeg?
A better comparison is purchasing a star, or a plot of land on the moon.
> So many people have learned nothing.
The more I talk to crypto/NFT people, the more I’ve realized that they’re looking at the same historical events but walking away with completely different take-aways.
For example, they wouldn’t look at the Beanie Baby bubble and think of the people who invested a lot of money and had nothing to show for it after the crash. They’d look at the price charts of Beanie Babies and pattern-match that to NFTs with an assumption that they’re early in the game. Just sell before the line goes down and they’re going to be rich!
> Just sell before the line goes down and they’re going to be rich!
This is generally known as the greater fool theory.
In many respects they are right. Frequently there _are_ greater fools. Eventually someone is left holding the can. The Art world works because there are a few extremely wealthy people who are content to be the 'fool' at the end of the chain. In those cases sentimental attachment or simply being a patron of the arts is enough for them. If everyone expects to make a gain, it's a house of cards.
Cryptocurrencies are a bit different. While there is the same line-goes-up, line-goes-down hunt for greater fools going on, beneath that are people gauging the actual worth. Bitcoin and ETH are vastly overvalued base upon current utility, but if they came to replace money/gold/other they could be worth many times their current value. Investors buying and selling on that basis are not looking for greater fools but are attempting to be more right about the future than average.
> Frequently there _are_ greater fools.
That's the basic point of the theory! The tricky part is, at least on mass, humans are much worse at knowing where they are in the curve than they think they are...
I wonder how many individuals were buying beanie babies compared to nfts?
I suspect far more beanie baby buying individuals.
Are beanie babies the new go to for this? Cause 10 years ago everyone used to laugh at the irrational exuberance of the dotcom boom, pets.com and all that.
Then 10 years later everyone realized the exuberance was actually totally rational when you're talking about the market shifts the internet brought and the size of the spoils that would eventually befall the winners.
I've been hoping someone would make a satirical beanie baby nft website.