An Era Of Unreality Defined By Magical Thinking
A weekend topic on financial manias. “At one point in the late 1990s, a $5 toy mass-produced in China became such a big craze that people – mostly adults – paid thousands of dollars to collect them. But only a few years after Beanie Babies made their creator a billionaire, the stuffed animals became virtually worthless. Humorist Dave Barry explained the craze in a 1998 column: ‘Beanie Babies were originally intended as fun playthings for children, but as the old saying goes, ‘Whenever you have something intended as innocent fun for children, you can count on adults to turn it into an obsessive, grotesquely over-commercialized ‘hobby’ with the same whimsy content as the Bataan Death March.’”
“A self-published author sold more than three million copies of a book that touted ten-year predictions for their values. The magazine Mary Beth’s Beanie World, started by a self-described soccer mom, reached one million copies in paid monthly circulation. In it, a full-page, full-color ad for Smart Heart tag protectors led with this headline: ‘How Do You Protect An Investment That Increases By 8,400%[?]‘ The answer was to buy hard-shell lockets in which to encase the heart-shaped paper tags that read ‘Safety Precaution: Please remove all swing tags before giving this item to a child.’ More than any other consumer good in history, Beanie Babies were carried to the height of success by a collective dream that their values would always rise.”
“I was in middle school when the Beanies hit and I remember a couple I had. But mostly I remember the Beanie Baby dealers who sprouted at Cape Cod’s Dick & Ellie’s flea market, which my mother and I visited every weekend. I remember the adults wearing fanny packs and visors, eagerly discussing the ’secondary market’ fluctuations driving up the prices of pieces they’d paid $5 for a few weeks earlier. The Beanie sellers had the busiest booths and, for a couple years, it really did look like the dealers sticking with Shaker furniture and oil paintings were as out of touch as Warren Buffett seemed to be when he eschewed Internet stocks in favor of acquiring Dairy Queen in late 1997.”
“I hadn’t thought about Beanie Babies at all in at least ten years until, on a wintry day in 2010, I stopped at Kimballs, an auction house down the road from the University of Massachusetts, Amherst. I was a year away from graduating into the worst job market in a generation, and the fallout from the recent speculative mania in real estate was never far from anyone’s mind.”
“Three large Rubbermaid containers on a table in the back of the room holding at least five hundred Beanie Babies, all with plastic lockets protecting their hangtags. Some were preserved individually in Lucite containers. There was another large box of magazines and price guides with names like Beanies & More, Beanie Collector, Beans! Magazine, and Beanie Mania. Then there were spreadsheets and checklists—how many of each Beanie Baby the collector/speculator had, which ones she was missing, how much was paid, and estimates of current value (as of 1998 or 1999).”
“More interesting than the Beanies themselves was the manifest conviction of whoever had assembled the collection that it would one day be of great value. Everything on display was perfectly preserved and, as we found out when the auction started at 6 p.m., almost worthless. The entire lot sold for less than a hundred dollars—probably well below 2 percent of its value at the height of the Beanie Babies market, which, not coincidentally, was the height of the Internet stock bubble.”
“That the speculative episode in Beanie Babies took place in tandem with the Internet bubble suggests that the cultural forces that were alchemizing Internet stocks had the same effect on Beanie Babies. They rose in an era of unreality defined by magical thinking; as economist Dr. Robert Shiller writes in Irrational Exuberance: ‘Speculative market expansions have often been associated with popular perceptions that the future is brighter or less uncertain than it was in the past.’”
“They also, Shiller notes, have a way of clustering around century turns—as if the prospect of going from ’99 to ’00 is so fantastic as to make all things seem possible. In the new millennium, the residents of America’s high culture thought, the Internet would change everything, making everyone who bought Internet stocks rich, no matter how much they paid. Those in the lower culture adapted that optimism to a belief in the investment potential of stuffed animals, and it’s hard to say which view was proven more wrong.”
Book Excerpt: ‘The Great Beanie Baby Bubble’
By Zac Bissonnette
http://img802.imageshack.us/img802/7812/caseshiller.jpg
Falling housing prices and the resumption of the housing correction and massive, growing excess housing inventory in the 20-30 million range, what’s not to like?
The Case-Shiller Index appears to have reached a permanently-high plateau at a level just north of 150.
Tulips, Beanie Babies, etc. Manias will always be with us. There was also the Cabbage Patch kids, although not quite as rabid as the beanie babies. A lady I know thinks her mother’s Hallmark ornament collection is worth thousands. I didn’t have the heart to give her the bad news. There’s a lot of Royal Doulton stuff that isn’t worth squat anymore.
It’s all magical thinking now. What do you think 8 percent returns to infinity for public pension funds is? Our national fiscal and economic policy is: have some more heroin and don’t think about tomorrow.
I don’t know, maybe extend and pretend can go on forever. Madoff went on for a very very long time.
Recent story from a guy who is retiring. He is an engineer specialist and the company wanted to hire him as a consultant on a contract. However, the Govt has apparently determined that these are sham retirements, since the retiree will collect the pension and benefits. But more importantly, the pension/ benefit program of all corporations are backed by federal taxes. I did not know this last bit. This is to prevent the double dipping into pension system - same for govt employees now.
So the IRS is looking at this closely in all companies that do not hire new people but want to get the highly technical retired personnel back on the next day after they retire. Companies are supposed to have at least a year between hiring personnel on contract.
The Pension Benefit Guarentee Corp insures private pensions, not the Federal government. The PBGC is funded from corporations that offer pensions.
I know that, but why is the IRS involved, if they cutting are cutting down on the scams?
Eight percent was a fairly standard pension fund investment return assumption back in the late 1980s, when one could buy 30-year Treasurys yielding eight percent.
Now that 30-year Treasury yields are below three percent, an eight percent return assumption doesn’t hold water.
8 percent returns to infinity for public pension funds is ??
8% is the goal to balance…When they can’t balance they get the revenue another way…And, in a way that you cannot avoid unless you move out of the municipality…We just got a notice…Water rate is going up AGAIN…This time 33%…
At least you don’t have to store, clean and maintain the dust off a dot.com stock. Unlike houses, they have no operating costs.
Pessimism leads to these kids of behaviors too — Bitcoin, Gold.
So waiting for a more reasonable price for actual income producing assets, I’m mostly in cash. But what is cash, really?
It’s something people made up to represent a claim on other people. I produced more than I got in the past (or at least got cash some other way), therefore you must produce more than you get in the future to shift that around the other way.
With so much cash and so many ill gotten gains, however, there is an attempt to reduce the value of that cash to spare those future payers, some of whom somehow include today’s children and the unborn. And concern that the value of that cash is only falling perhaps 1.5% per year rather than 2.0% per year.
It’s a war of attrition to see who takes the losses. And the smarter (but not evil or connected) people are those who merely lose a little at a time.
“I produced more than I got in the past (or at least got cash some other way), therefore you must produce more than you get in the future to shift that around the other way.”
What productive activity is involved in watching the Fed’s QE1, QE2 and QE3 create blowout capital gains for those who are fortunate enough to be sitting on a hoard of possibly inherited wealth?
“In it, a full-page, full-color ad for Smart Heart tag protectors led with this headline: ‘How Do You Protect An Investment That Increases By 8,400%[?]‘ The answer was to buy hard-shell lockets in which to encase the heart-shaped paper tags that read ‘Safety Precaution: Please remove all swing tags before giving this item to a child.’ More than any other consumer good in history, Beanie Babies were carried to the height of success by a collective dream that their values would always rise.”
This has to be one of history’s most egregious examples of a Keynesian beauty contest. How could anyone with an IQ over 80 have possibly taken this seriously?
Yeah, I’m not so sure that was history’s greatest example. Even if garage sale types or other lower or middle class people had their get rich quick dreams fanned, it was very small potatoes and mostly harmless, like pet rocks.
Blowing up the stock market via dot bombs or people’s largest asset, their house, is much much worse. As for beauty contests, beanie babies were the Miss East Cincinnati city pageant, what’s happening now is the Miss Universe. Here we are laughing at beanie baby buyers as mouth breathers when 23 yr old interns are still buying $300k+ crapshacks.
I rather think that two hundred years of Crusades was the mother of all manias.
“This is a new kind of, a new kind of evil. … And the American people are beginning to understand. This crusade, this war on terrorism is going to take a while” - GWB, 2001.
“More interesting than the Beanies themselves was the manifest conviction of whoever had assembled the collection that it would one day be of great value. Everything on display was perfectly preserved and, as we found out when the auction started at 6 p.m., almost worthless. The entire lot sold for less than a hundred dollars—probably well below 2 percent of its value at the height of the Beanie Babies market, which, not coincidentally, was the height of the Internet stock bubble.”
It’s not so much the Beanie Baby Bubble in isolation which is a great historical example, but its concurrence with the Housing Bubble and the Tech Stock Bubble which makes it noteworthy. One might naturally suspect there was some underlying factor driving all these bubbles sky high at exactly the same point in history!
“The entire lot sold for less than a hundred dollars—probably well below 2 percent of its value……”
….and way below reproduction cost, and that is the best way. The buyer got a sweet deal!
It’s Jingle_Fraud and his $45,000 water meters.
The difference between Miss East Cinci and Miss Universe?
You might have a shot at Miss East Cinci but Miss Universe is most likely out of your league.
By the way, Miss East Cinci is probably very attractive.
Professor Bear: This has to be one of history’s most egregious examples of a Keynesian beauty contest. How could anyone with an IQ over 80 have possibly taken this seriously?
“Greater Fool-ism” is a hallmark of a bubble it seems to me. Something may have some intrinsic value in consumption. When the primary driver of price is the possibility it may be sold to a “greater fool” in the future, and the supply of greater fools seems endless, that is a bubble, it seems to me.
“Three large Rubbermaid containers on a table in the back of the room holding at least five hundred Beanie Babies, all with plastic lockets protecting their hangtags. Some were preserved individually in Lucite containers. There was another large box of magazines and price guides with names like Beanies & More, Beanie Collector, Beans! Magazine, and Beanie Mania. Then there were spreadsheets and checklists—how many of each Beanie Baby the collector/speculator had, which ones she was missing, how much was paid, and estimates of current value (as of 1998 or 1999).”
Where did ‘they’ hide all the vacant, unneeded, unwanted U.S. housing inventory after the housing market crash?
*BEANIE BABY COLLECTION** - $3500 (Throgs Neck)
Having recently retired, I am selling many of the collectibles I have kept over the years. This is an extensive collection of BEANIE BABIES, dating back to 1994. There is a total of 66, of which some are pictured here. THEY ARE ALL MADE IN CHINA. I WILL ONLY SELL THE ENTIRE COLLECTION, NOT SELLING ANY INDIVIDUALLY !!!!
Below is the complete list of babies and their birth dates.
http://newyork.craigslist.org/brx/clt/4909268595.html
Part of the list:
Valentino 12-94
KuKu 1-97
Early 3-97
Rocket 3-97
Whisper 4-97
Stretch 9-97
Beak 2-98
Eggbert 4-98
Sammy 6-98
Roam 9-98
Goochy 11-98
Millennium 1-99
Almond 4-99
HALO II 1-00 (Two of these)
$3500/66 = $53.03/unit.
HUGE LOT OF 1,750 TY BEANIE BABIES BABY BUDDIES PLUFFIES MCDONALDS NEW - $2000 (FLORAL PARK)
PAID OVER $10,000 FOR THIS COLLECTION.
$2,000 TAKES IT, FIRM
http://longisland.craigslist.org/tag/4912433658.html
PLEASE DO NO E-MAIL ME WITH LOW BALL OFFERS, OR OFFERS TO SPLIT UP THE LOT. $2,000 FOR EVERYTHING.
NEW WITH TAGS
1,500 TY BEANIE BABIES
200 TY MCDONALD’S BEANIE BABIES
50 TY BEANIE BUDDIES & PLUFFIES
‘Where did ‘they’ hide all the…’
I would ask, how many of us are living under a bridge? The toys are interesting, and the link has much more on how this whole thing was pulled off. Central to it was a scarcity, a rareness. The first lot of a shallow batch of one product. As if the first lot would look any different than the last. And couldn’t these factories produce an almost limitless amount of these plastic toys?
In hindsight, we can see pretty good. When it’s going on, it’s real enough. These examples of ‘I paid $10,000′ and ‘8,400% appreciation.’ This guy became a billionaire! Yesterday, I posted a Canadian talking about his expensive cars and clothes, and how his industry willfully keeps the scam going. If Beanie Babies were going through the roof today, wouldn’t the Chinese be going crazy for them? I’ve posted numerous reports of them going bonkers for gold jewelry, jade, rosewood furniture, wine. And houses, boxes of air in the frigid Canadian sky. Jeebus, it is widely reported that Manhattan has a forest of empty luxury condos springing up. What is the motivation? Profit, same as these toy buyers. Lock em’ in a box, so they hold their ‘value.’
Manias happen. There are people who exploit the greed. If it’s a mania, all you need is to look to see the falseness of it. There is no shortage of land, never has been, never will be. But greed, that’s where they rope so many in.
The biggest factor IMO: the global bubbles look to be bursting at near the same time. And as many here suggested for years, China was the first domino ??
I would wholly agree with this Ben…I think it happens over there first and something to be watched closely…
You can’t drive up the price unless someone will lend you the money, at least for things like houses or college. Those bubbles don’t happen with cash.
Those bubbles don’t happen with cash ??
Saved cash…Borrowed cash….Its still cash…
Nonsense and a false equivalency. There is my money and there is other peoples money.
*LEARN* the difference.
Saved cash…Borrowed cash….Its still cash…
There it is.
Only as it relates to price. If it weren’t for borrowed money, we wouldn’t have a bubble.
Borrowed money boomerangs and that’s precisely what we’re seeing right now.
Dumb borrowed money sets the price for any house that fits the norm of the day (can be financed). Earned saved money has already bought with years of blood, sweat and tears. A rational person spends that as if dispersing years of their lives, sparingly. A debtor has no sense of the pain, no insight into the folly of spending two or four times the cost of building a house to buy one, will buy two to four times the size of the house they actually need, and will buy all of the materials to build are in an incredible bubble. They loose decades of their labors with tears of joy.
Sure, you can have a mania without debt. It just can’t be so gigantic.
When my son was a Marine stationed in Ramadi, a woman I know gathered and sent him 1,000s of Beanie Babies. He passed them out to the children. I thought… finally, something of value from Beanie Babies. They were all donated!
“…going bonkers for gold jewelry, jade, rosewood furniture, wine.”
At least they did not go after all the single malt, like the Japanese did!
I was going to ask how and when the beanie baby bubbble collapsed. And now I see it’s still creeeatering. Wow. After all these years they’re still liquidating at a loss.
A major weight loss company gives out beanie babies when their customers reach certain goals. I know one woman who has many of those babies, she gained all the weight back, and more, when she went off the program.
The program. What they’re all selling is the idea that, the future is brighter or less uncertain than it was in the past?
“After all these years they’re still liquidating at a loss.”
I believe this is the nature of the aftermath of bubble collapse. People hold out hope as long as possible that their losses will be reversed before ultimately liquidating.
I expect the same to eventually happen with people who have sat on underwater housing since 2008, hoping the value will somehow return to early-2007 peaks. Based on the aftermath of Japan’s early-1990s real estate bubble collapse, this could play out until at least 2030.
I could put several boxes of worthless toys on craigslist and hope that someone might give me two grand for them. That sounds more like a scam than liquidation. Here are a couple of graphs:
http://2.bp.blogspot.com/-U7XXBc9BwCQ/UOMleF08XdI/AAAAAAAABvw/OYMWN1Ixc7w/s1600/japan-house-prices–nov08.gif
And check out the condo prices in Japan the past few years:
http://tochi.mlit.go.jp/english/wp-content/uploads/2015/02/sokuhou_201411_3en.png
It looks like it took Japan’s land and detached house prices about 18 years (1991 through 2007) to reach a permanently-low plateau.
On similar timing, U.S. housing prices would finally bottom out by 2025 (2007 + 18). This could work out well for some of our kids, who will be reaching the point in life a decade from now when one has to decide whether to buy a home or rent one.
http://www.imf.org/external/research/housing/
Peaks were a few years ago for most. Personally, when they said foam the runway for the banks, I believed it. What would have happened if there was no HAMP? What if the GSE’s had been delisted and denied the bond markets? What if the central bank hadn’t started buying trillions in MBS’s? These were pretty large, planned (even maybe coordinated) actions that have had significant effects. Had this not occurred, house prices would be considerably lower today, IMO.
Many countries had a drop a few years back. China, Australia, Canada, the UK, Dubai, to name a few. Then the prices went to new highs. We have a few of those here in the US. Denver, of all places. Dallas. Houston. The history of these bubbles hasn’t happened yet, much less been written.
Here’s a treasure of information:
http://www.bis.org/statistics/pp_detailed.htm
‘IMF Warns Global Housing Market Overheating, Including In U.S.’
http://www.forbes.com/sites/kenrapoza/2014/06/12/imf-warns-global-housing-market-overheating-including-in-u-s/
When was the foam the runway plan first reported? I know it’s been here before, but if anyone has it handy…
Answering my own question, it looks to have been first reported by Brofsky in about August 2012, long after the plan was implemented and significantly after the echo bubble started in my area.
“Many countries had a drop a few years back. China, Australia, Canada, the UK, Dubai, to name a few. Then the prices went to new highs.”
Largest and most protracted dead cat bounce in the history of western finance.
It will be interesting to see how many folks lose their shirt buying the slow-motion dead cat bounce, same way Sir Isaac Newton did in the South Sea Bubble.
Quick, somebody warn the bubble patrol squad over at the Fed!
“Wow. After all these years they’re still liquidating at a loss.”
And yet at the same time, my kids were just given some beanie babies. They are still selling them…
New Beanie Babies….off the store shelf?
“…she gained all the weight back, and more, when she went off the program….”
Sounds like she likes her food, and lots of it.
“They also, Shiller notes, have a way of clustering around century turns—as if the prospect of going from ’99 to ’00 is so fantastic as to make all things seem possible.”
That’s an interesting observation and I wonder if this phenom applies to turns of decades as it does to turns of centuries.
IIRC the insane pyramid schemes that struck in the Seventies struck a year or two before the end of the decade, possibly implying that the Eighties were to somehow become a New Era and that financial pyramids would lead the way.
I remember the chain letter mania of the 80’s.
If you and 9 friends forward this comment to others and each send Ben $10 on PayPal, I will post a picture of me in a green tshirt with cowboy boots on, holding a basket of mangos. And untold riches will be yours.
I think Lola is in Bangkok now.
Beanie Babies was a bubble that tanked.
Star Wars Toys are still going up in value. A box of the “right ones” is currently worth thousands of dollars.
Muscle cars from the 1970s are sky-rocking in value. $200,000+ for a car that sold for $15,000
I still remember people selling silver in back room deals from the bubble back in the 1970s. Silver has still not recovered.
Some people pay $500 for a pair of nikes. Others have vast collections. What are they worth 10 years later - even if never worn?
“The value of a thing is what that thing will bring”
–Legal Maxim
Of course - easy/cheap credit and massive federal deficits will create many more bubbles than “normal”
“Star Wars Toys are still going up in value. A box of the “right ones” is currently worth thousands of dollars.”
Because no one thought they would be worth anything when they were sold in the first place. I remember going into a friend’s basement in high school. There were two things of note: first, the giant MJ plant in a hydroponics setup, and second, an entire wall of Star Wars toys…still in the boxes. This was over 20 years ago…if they have kept them all, they could probably resell them and buy a house.
People started collecting beanie babies when they were still being mass produced.
Baseball cards from the era when no one thought of them as collectible can be valuable. From later (late 80’s onward)? Not so much.
Ty Beanie Baby 1999 Osito No Number on Tush Tag 5th Generation, NEW AUTHENTICATED “Museum Quality”
This little guy is from our personal collection. He has never been displayed or played with and has been store in a box with the rest of the collection. His tag reads:
Date of Birth: February 5, 1999
Across the waters of the Rio Grande
Lies a beautiful and mystic land
A place we all should plan to go
Known by all as Mexico!
He has been authenticated by Becky’s True Blue Beans and sealed in box. Her comments read:
” MWMT-Museum Quality! Absolutely MAGNIFICENT Beanie!”
http://www.ebay.com/itm/Ty-Osito-RARE-No-Number-Tush-Tag-5th-Generation-Beanie-Baby-Mexico-NEW-/161629318693
How many are there?????
http://www.ebay.com/itm/THE-BEATLES-RUBBER-SOUL-ORIGINAL-LP-STILL-SEALED-/261741192902
http://www.ebay.com/itm/THE-BEATLES-Revolver-ORIGINAL-1966-CAPITOL-LP-FACTORY-SEALED-/391060114239