Tulip Mania - March 9, 2022

My An Arkie's Faith column from the March 9, 2022, issue of The Polk County Pulse.

Last week's sunshine and warm temperatures signaled that spring would be arriving soon. Daffodils are blooming, and their bright yellow faces, reaching towards the sun, make me smile. From the first thoughts of spring, daffodil blossoms prophesy that winter will soon be over and better days are coming. While daffodils are some of the earliest flowers to bloom, Tulips are not far behind. This weekend I saw my first tulip, a deep scarlet red, announcing that many more tulips would be arriving soon.

One of my favorite springtime activities is to visit Garvan Woodland Gardens in Hot Springs during the peak tulip viewing times. Garvan Woodland Gardens are beautiful any time of the year, but I think that the tulip season is quite possibly the best. Walkways lined with the spectacular sight of over 150,000 breathtaking tulips in a wide variety of colors cover the gardens. 

When the Turks discovered tulips in the mountains of Kazakhstan, they were very impressed with their beauty. Some tulips were brought to present-day Turkey and planted in the gardens of the most influential people in the Ottoman Empire. In the 16th century, Constantinople was known for its beautiful gardens, where many people admired the flowers. Rare and valuable tulips were grown in the interior gardens of the Sultan's palace.

A Flemish merchant was unintentionally one of the first to introduce the tulip to northern Europe in 1562. Among the bales of cloth he had purchased in Constantinople, he found a package of tulip bulbs. Ignorant of their identity, he roasted them and ate them for supper. The rest he planted in his garden next to the cabbages. When the tulips bloomed in the spring, the botanist Clusius was impressed by the vibrant red and yellow flowers. He recognized their importance, growing, studying, and giving bulbs to fellow horticulturalists. In 1593, Clusius came to teach at Leiden University in the Dutch Republic and brought his vast tulip collection.

Soon, tulips became popular in Leiden, and their popularity spread throughout Dutch culture. Many paintings began to feature tulips, and merchants held festivals to show off new varieties. Tulips became so popular that they created the first economic bubble, known as "Tulip Mania."

In 1634, the world's first recognized investment bubble began when Dutch speculators frantically bought tulip bulbs. The bulbs were a highly prized status symbol, and the most desirable varieties saw their value surge. Soon, prices were rising so fast that people were trading their land, life savings, and anything else they could liquidate to get more tulip bulbs. Everyone began to deal in tulip bulbs, essentially speculating on the tulip market.

From 1634 to 1637, an index of Dutch tulip prices soared from approximately one guilder per bulb to sixty guilders per bulb. By the peak of tulip mania in February of 1637, a single tulip bulb was worth about ten times a workers' annual income. The prices were not an accurate reflection of the value of a tulip bulb. With prices so high, some people decided to sell and reap their profits. A domino effect of progressively lower and lower prices occurred as everyone tried to sell while not many were buying. The price began to dive, causing people to panic and sell regardless of losses.

Many people lost everything in the Tulip Mania crash of 1637. Dealers refused to honor contracts, and people realized they had traded their homes for a tulip bulb. The government attempted to step in and halt the crash by offering to honor contracts at 10% of the face value, but then the market plunged even lower. Today, we wonder, why would anyone pay ten years' salary for a single flower bulb? 

As we look back on Tulip Mania, it all seems silly. But modern investors are not immune to market bubbles. According to Forbes.com, "A stock market bubble is driven by raw speculation. A bubble begins to form when there's a gathering acceleration in price for an asset that far outstrips the asset's intrinsic value. That means people are willing to pay more and more for a security or another asset, above and beyond what's expected based on things like demand, earnings, revenue or growth potential." 

Former Federal Reserve Chair Alan Greenspan used the term "irrational exuberance" to describe the collective enthusiasm among traders and investors that fuels rapidly increasing prices. Whether you call it the crowd mentality, herd bias, the bandwagon effect or FOMO, there is a self-perpetuating cycle where people want to buy an asset because its price is increasing, driving the price even higher and making even more people want to buy it.

Tulip Mania and other market bubbles remind me of the words of Jesus in the Sermon on the Mount. "Don't store up treasures here on earth, where moths eat them and rust destroys them, and where thieves break in and steal. Store your treasures in heaven, where moths and rust cannot destroy, and thieves do not break in and steal. Wherever your treasure is, there the desires of your heart will also be." Matthew 6:19-21 (NLT)

Here Jesus tells us not to place too much value in the things of this world. If you treasure them as the most important things in your life, one day, you will find yourself very disappointed when they are devalued, destroyed, or stolen. Is Jesus telling us that we should not have any possessions here in this world? Of course not. But He tells us that treasures on earth are subject to being devalued, destroyed, or stolen. Treasures in heaven are secure. They are a safe investment.

Gentle Reader, the Bible says, "set your mind on things above, not on things on the earth." Colossians 3:2 (NKJV) The most significant investment we can ever make in our lives is to invest in God. No investment that we make in our life compares with the blessing of eternal life. "The wages of sin is death; but the gift of God is eternal life through Jesus Christ our Lord." Romans 6:23 (KJV) Remember that investments may fail and the bubble may burst, "but the word of the Lord endures forever." 1 Peter 1:25 (NKJV)