There was a very interesting piece written by Karen Blumenthal in The Wall Street Journal yesterday. Blumenthal takes a look at the Beanie Baby craze and how we can all learn from the "Beanie Baby Bubble." Blumenthal has studied bubbles and has determined that there is a pattern that drives these economic phenomena - be it Beanie Babies, real estate, or "Dot Coms."Blumenthal contends that bubbles need these characteristics: fertile ground, people getting on board, ignoring warnings, greed, and an after-party. Think about the fertile ground, when Beanie Babies first came out, there was a fertile ground. Kids, parents, and grandparents were looking for a new toy, one that could be both a cherished heirloom and a cute adornment for mantles, dressers, and the back window of Cadillacs. The ground was fertile, and this group quickly jumped on board the Beanie Baby train and pushed the prices to a point where some people would pay upwards of $100 for a $5 bean-bag animal.
Did people ignore warnings on Beanie Babies? I'm not sure, but Blumenthal takes a look at research done on the trendy handbags that every celebrity had to have, and consequently every woman in the world. Once everyone jumps on board and ignores warnings, that is when greed takes over and the prices eventually rocket.
So, can we determine the next potential bubble by looking at this pattern? The first sector I thought of of was cellular phones. New technology is coming out every day, and the ground is very fertile. I can't find any warnings about the sector, but I do worry about what will happen if there is a cell-phone bubble and if it pops. What happens to all the people paying crazy amounts for iPhones and the packages? What happens to companies that put all of their eggs in the cellular basket?
Please understand that I am not predicting a collapse in cell phones. In fact, I think this sector may be able to withstand a bubble bursting because of the popularity of the technology and the companies that are providing affordable technology will allow people to purchase phones. Perhaps this sector (or the technology sector as a whole) can withstand a bubble bursting - at least better than Beanie Babies.
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Reader Comments (Page 1 of 1)
8-26-2009 @ 4:05PM
G. Arnold Williams said...
Boy, are we overusing the term "bubble". Let's just refer to auto sales in 2007 as the "car bubble". They have certainly fallen off dramatically since then. But to do so whould degrade the utility of the concept of a bubble almost as far as this author does relative to cell phones. Cell phones are priced competitively and still reflect normal ranges of profitability. Whether demand for them continues to rise or decline will depend on many factors, including advances in technology. But nowhere is there any indication of excalations in pricing independent of the products' utility. What defines "bubbles" is the "irrational exhuberance" to borrow a phrase. There is nothing irrational or bubblicious about wanting continually better-performing, better technologies that we use every day.
8-27-2009 @ 5:25AM
Dan Barnett said...
Isn't there an "increase in value" aspect in bubbles that would be lacking in cell-phones? I mean no one buys a "retired" cell phone. As far as I can tell there is no flourishing secondary market for cell phone "investors". There is no collectors market for cells by maker or design.
There may be "bubbles" forming at the moment, but cell phones are probably not the focus.