When the expansion bubble bursts pain and agony are sure to follow

Economic peaks or “bubbles” has become a common concept in the 400 years since the tulip mania of the 17th century.  In 1619 in Holland the price of the tulip bubbles grew and grew, reaching unimaginable heights; a tulip bulb increased in cost from a few pennies to thousands of dollars.  Once the prices started to go up dramatically the buyers were not flower lovers or growers they were speculators, people each only for profit.  Everyone had the same idea, buy the tulip bulbs at whatever the price one had to pay and in a day or two it could be sold and they buyer would reap a huge profit in the process – what a deal!  Of course that worked until it did not work.  At some point there were no more eager, buying suckers – and then the owners of tulip bulbs became the suckers.  It is a common phenomenon – it has happened many times in the stock market – a stock’s price goes up and up – that is until it starts down – then those who sought instant riches become instant paupers.

We have just had a version of the tulip mania here in real estate; anyone who bought property in 2004, 2005 or 2006 knows the pain and agony of buying real estate at its peak.  A peak of that kind is a very dangerous and risky place, but greed causes the most cautious of us to climb up the mountain.  Greedy or not, everyone would like to know how to tell when something is peaking; who would have bought a house, stock or anything else in 2006 if they had known what was coming down the pike, just months away?  Would it not be nice to know when to stop buying and cash out?  Sadly, no such magic crystal ball is available.

Real estate, tulips, commodities, gold and stocks are not the only place one can find those opportunities to get in on a good thing and reap the benefits.  If we just knew when the time was right and before it is too late and the infamous bubble was ready to burs – wouldn’t we all buy and sell just at the right time?.  But that is one of the key indicators of a bubble; when a buying phenomenon reaches a point where an average buyer, an unsophisticated buyer is rushing into the fray, the bubble is about to burst.  The wise guys get in and out long before the suckers jump into fire.  Of late, one might say that casino gambling has been one such bubble. As state after state rushes to take advantage of the guaranteed profits to be gained from legalizing casinos; that is they hope the profits are guaranteed.  But in most cases they are like the unsophisticated buyers of real estate, commodities or tulip bulbs, they don’t take the time to understand the market or into what they are getting involved.  It might just be too late to reap anything but the pain and agony.

Take, for example a group which submitted a petition recently to the state to place gaming expansion on the November ballot.  In Michigan a group of people, I would suspect public unions members by the way they wish to distribute their gains, wants to rush and push the state into expanding the casino industry; eight more casinos they suggest, just eight more.  Eight is not very many, not many in a state with 9 million people; not many except Michigan already has 25 casinos, 3 in Detroit and the other 22 are Indian casinos spread around the state.  They may just be jumping into the fray too late; but here of course my metaphor fails me, because they will not be jumping, buying or risking anything of their own; quite the opposite they are simply trying to create revenue stream to secure their own jobs.  It will be the casino developers that have to take the risks and do the jumping.

Group backing 8 new casinos says it has enough signatures to get on ballot – “Not only does our plan create thousands of new jobs and raise the tax rate on casinos, but it also dedicates the revenue that casinos generate to important items like K-12 spending, police and fire, road improvements and to local counties and municipalities.”  A group that wants to see more casinos in Michigan announced Tuesday it had submitted enough signatures to get the issue on the November ballot. Citizens for More Michigan Jobs said it has turned in 509,777 signatures to the Secretary of State, which must verify authenticity before recommending putting the question to voters. The group is calling for eight new casinos in Michigan, which they say would create jobs and tax revenue. It plans to start an advertising push for the proposal in July. Detroit News,6-26-12 

There is always a limit to the use of a metaphor, even one with so many possibilities – like tulip bulbs and real estate bubbles bursting – but it is still possible to say, there is a limit, a ceiling, a peak to any phenomenon of expansion.  Gaming is one such phenomenon of expansion and whether in Michigan or Maryland it is fast approaching a peak, the bubble is swollen to the point of bursting; pain and agony will surely follow for someone.


2 Responses to “When the expansion bubble bursts pain and agony are sure to follow”

  1. 1 Bill Hanigan June 27, 2012 at 6:34 pm

    As far as the equity market an old guide has been to bale out when the taxi driver starts telling you which shares to buy. I would have thought the market building casinos would be more savvy. Obviously not !

  2. 2 walkfit orthotics reviews June 27, 2013 at 2:58 am

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