In reality, everything in our world goes in cycles. In most parts of the planet…we have seasons. Spring when the snow melts and the flowers bloom, summer where fruit trees produce ripe juicy fruit to enjoy, fall when crops are harvested and food is eaten and also stored, and finally winter. In the winter time the days are shorter and the nights are long, but it does give us all a time to relax and to reflect back on what has transpired over the course of the year. And then the cycle begins again.

Stock markets also have cycles. And within these cycles are micro cycles. At different times different industries or sectors of the economy do well, while at other times life is a bit more difficult. For example, a grain exporter does not always know how large a crop will be in any region until the crop is harvested. Some years they could make a lot of money, other years they may not be able to cover all of their operating expenses. A drought half-way across the world can be quite profitable for those growing crops that were not affected by the drought.

Bubbles are another phenomena that occur quite regularly, but not everyone pays attention to them unless it impacts them directly. A bubble is when something is valued at what may seem like a ridiculous amount of money for a prolonged period of time. An early example of this is Tulip Bulbs in Europe in the 1600’s. The price of tulip bulbs became excessive because the tulip bulbs were used not just for planting pretty flowers but were used in trading for other goods and services. And, of course, they became so expensive that they were seen as a symbol of status if one could afford to have actual tulips in their garden. The price made no sense relative to their normal utility, and yet the price bubble persisted for many years. The market finally crashed, as bubbles do, when pretty much everyone in Holland had leveraged themselves massively to own tulip bulbs. And as the market fell there was no-one left to buy the bulbs.

During bubbles a large amount of resources are sucked away from other parts of the economy and put into this one sector. The longer the bubble persists… the more time, energy and capitol is sucked into the bubble. Those who invested early, become very very wealthy. Those who “go for the ride” stand to gain a great deal.

Of course, this means that over time other jobs and services become neglected and suffer severely. Those who refuse to participate often suffer severely as resources and capital is sucked away. The longe the bubble persists, the more followers it attracts. Partly because people see how much money everyone else is making, but also partly because there is no other game in town…. nobody wants to talk about anything else and nobody is willing to purchase or direct their energy in any other direction. Those who do not play often suffer….

Until the bubble finally bursts. When the bubble bursts anyone solely invested in the bubble without taking profits ends up with nothing. Further, those who resisted the bubble are often exhausted and starved out because all the resources were redirected to the bubble. Such that the “I told you so” does not have as big a victory dance to those non-participators as they would have initially liked. In the end, there results in a massive transfer of wealth to those who get in early, and who can magically time exactly when the bubble is going to burst.

Those “in the know” generally like to keep the bubble up for as long as possible to garner maximum participation therefore maximum transfer of wealth. And they even develop strategies to profit again as the bubble bursts. Like buying up the assets of bankrupt companies for ten cents on the dollar after everyone else has been wiped out financially and cannot therefore come up with a competing bid.