August is named for the first Roman emperor, Caesar Augustus. It is one of only two months honoring a mortal (July belongs to Julius Caesar). With the decline of the Roman Empire and the Roman Republic, the reputations of the two leaders weakened over time. Recognizing that humans are not gods, the calendar committee held little enthusiasm for making further changes.
Augustus is also a name connected to the first speculative bubble in recorded history. In the 1630s, the Dutch Republic was a military and economic powerhouse. With interest rates low, pocketbooks flush, and spirits elevated (sound familiar?), frenzied speculation in tulip bulbs erupted. By 1637, one particular variety sold for over ten times the annual income of a skilled craftsman. Behold, the Semper Augustus:
‘Semper Augustus’ translates from Latin as ‘forever exalted’. However, despite the grand title, this particular tulip’s variegated pattern was caused by a virus which made it delicate and short-lived. Though exceptionally beautiful, due to its inherent weakness the Semper Augustus was ‘exalted’ for only a brief period. Like the flower itself, the Dutch tulip mania eventually withered. Prices dropped to the ground, thus ending the bubble.
Was the Semper Augustus worth its exorbitant price at the top of the market? For some buyers, the thrill may have justified the cost, but only for a while. Markets are complex and dynamic systems. Circumstances and minds are constantly changing. The bottom line … asset prices are not the same as value; they are mainly a function of what buyers are willing and able to pay at a particular moment in time. That’s it. As for today, stories about the money being ‘made’ in cryptocurrencies, meme stocks, houses, NFTs, etc., have generated a certain degree of envy. However, this little tulip story is a sober reminder that ‘forever exalted’ doesn’t mean ‘forever viable’.
August is here. Try not to wilt.
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