Warning: Stocks Will Drop by 50% in 2014

Once again we've got another group of experts claiming we are heading for a stock market crash. 

Experts from around the world have said that we are in a financial bubble but then this is no different then what we have been hearing for the last couple years. 

And I’ve heard the rumors about Warren Buffett preparing for a crash as well.

But keep in mind that during World War II, the stock market advanced which makes me believe that over time it will continue to advance.  

American businesses are going to be worth more money, dollars are going to be worth less, so that money won't buy you quite as much but this doesn’t mean that businesses are going to be worthless.

The problem is that the same groups of people who have caused us to be where we are today are the same group of people trying to convince us that they have created secret systems that will allow them to see the crash coming before it happens.

I find it sad that people would look to take advantage of people and use scare tactics to try and get you to invest with them.  

If I had any musical talent I would be contacting a producer like James Citkovic now.  Of course since I lack the talent I can only rely on hard work but either way if at the end of the day I end up with any money left in my pocket it is a farm that I would be looking to buy.

What Causes Bubbles?

With the benefit of hindsight, we can examine past bubbles and learn a great deal. One of the earliest, if not the first, recorded bubble involved tulip bulbs.

Here’s how the story unfolded.

Tulips originated in the Iberian Peninsula (Spain and Portugal) and North Africa. The University of Leiden, in The Netherlands, hired Flemish botanist Carolus Clusius who established a botanical garden in 1593.

The newly hired professor planted his collection of tulip bulbs in what is now the oldest botanical garden in The Netherlands and one of the oldest in the world. The tulip began to increase in popularity as it was distinctively different from all other flowers.

Then the story took an interesting turn.

Many bulbs contracted the mosaic virus which caused a variegation in the tulips and petals gave the appearance of a flame.  This alteration made the flower even more coveted which caused prices to rise to the point where people began to view the tulip more as an investment than an adornment.

Everyone from nobility down to the chimney sweep dabbled in tulips.

Moreover, the belief that prices would continue to climb became the new paradigm.

While skeptics sat on the sideline, their friends and neighbors made handsome profits speculating on the bulbs. Call options were even created which allowed investors to pay a small fee for the right to buy tulip bulbs at a designated price within a specified time frame.

As speculation increased, prices soared and, in the final years of tulip mania (1634-37), people were hocking land, jewelry, and just about everything else to buy these amazing bulbs.  Greed was rampant as everyone believed this was the way to become wealthy.

One day a sailor returned to Holland bringing good news to a local merchant that a shipment of goods had arrived.  The merchant was so pleased that he rewarded the sailor with a free breakfast.

As the sailor sat eating, he noticed what he thought was an onion sitting on the counter nearby.  The sailor used the “onion” to enhance the flavor of his breakfast.  However, it was not an onion at all. 

Rather, it was a rare Semper Augustus tulip bulb.  

This bulb was so valuable that, if it were sold, the proceeds from the sale could have fed the entire crew of his ship for full year.  

What became of this sailor?

He was arrested on a felony charge and spent several months in jail.  But there’s more to this story.

When Bubbles Burst

What causes a bubble to burst?  In the case of the tulip, which is the typical bubble-bursting process, people began to sell their bulbs and take profits.

As more and more investors sold, panic-selling began and prices literally collapsed. The decline was swift and steep.

In fact, despite the government’s best efforts to calm investors, the “boom to bust” shock was so great, and so widespread, that it was followed by an extended depression in Holland.

Hence, bubbles are caused by speculation, excessive demand, mania, greed, etc., and they burst when investors take profits.

Other words, as the greedy stock brokers try and scare us into making a purchase they could be the very reason for the crash.

I do agree, things are not going to get much better as technology is replacing the worker.