Bubbles Everywhere: Why Hype Always Punctures the Market

Tulips!

Yes, Tulips!

Who would’ve guessed a flower could bring a nation to its knees?

Introduced to Europe in the 16th century via spice trading routes, tulips carried an air of exotic charm.

Vibrant and unique, they became a symbol of luxury, adorning only the grandest gardens of the wealthy.

By the 17th century, tulips weren’t just flowers but Holland’s ultimate status symbol.

Rare tulip bulbs fetched the equivalent of up to $1 million today , with most selling for $50,000 to $150,000.

Amsterdam’s streets became tulip exchanges, with dealers fighting to trade as if their fortunes depended on it.

Tulips were the NFTs of their day—beautiful, scarce, and wildly overvalued.

By 1636, the craze had gripped everyone, from noblemen to cobblers.

People traded land, jewellery, and even family heirlooms for these prized petals.

But, like all good things, the tulip bubble popped in the year 1637.

Investors realized that prices were irrational. Panic selling caused a market collapse, leaving many who had bought on credit bankrupt.

One moment, tulips were worth a fortune; the next, they were just flowers again.

The Dutch learnt an expensive lesson about speculative hype, one that was repeated throughout history.

Fast forward to New York in 1929.

The Roaring Twenties were in full swing—pubs buzzing, jazz playing, stocks climbing.

The Dow Jones Industrial Average (DJIA) had risen for five straight years , factories boomed, and high stock prices seemed justified—until they weren’t.

The cracks showed when overproduction met falling demand. Factories churned out unwanted goods—steel, iron, durable products—piling up with no buyers.

Black Monday, October 28

The Dow Jones Industrial Average (DJIA) experienced a significant drop of 13%.

This event marked the beginning of the Great Depression. Food queues stretched for miles, families lost their homes, and the world faced the consequences of its excesses.

By July 1932, the DJIA had fallen 89% from its peak and did not recover until 1954.

And then came the 2000s.

The Internet wasn’t just a revolution; it was a gold rush.

The dot-com bubble saw investors pour billions into companies that had little more than a “.com” in their name.

No profits? No problem! Venture capitalists were ready to risk it all.

Companies spent millions—sometimes 90% of their budgets—on advertising to establish dominance. Stock prices soared on promises and not performance.

Then, almost overnight, it all collapsed.

By 2001, most dot-com darlings were bankrupt, and trillions of dollars vanished into the digital air.

Moral of the story? Profits are greater than promises. Every. Single. Time.

The 2008 US housing crisis was another stark example of mass misjudgment.

In 2006 alone, lenders handed out $600 billion in subprime loans —nearly 1 in 4 mortgages —often to borrowers with shaky credit.

Cheap credit and sloppy lending standards ignited the housing boom.

Overpriced homes? Check. High-risk borrowers? Double check.

The bubble inflated, and homeowners revelled in their newfound wealth.

But bubbles don’t last.

As the Federal Reseve System (Fed) raised interest rates, monthly payments ballooned, and homeowners with adjustable-rate mortgages or interest-only loans began to struggle.

Refinancing? Selling? Not an option—home values were crashing.

From 2007 to 2010, nearly 4 million homes faced foreclosure .

Dream homes turned into nightmares as easy credit gave way to economic disorder, proving that easy money often results in hard crashes.

And yet, despite the lessons of the past, we continue to chase the same illusions.

From the dot-com bubble to the housing crisis and now the unpredictable cryptocurrency, this is how market bubbles operate—always.

Speculation takes hold and the promise of quick gains clouds judgment.

The fundamentals get ignored as hype and excitement drive the frenzy.

The warning signs are clear, but time and again, we let them slip by.

So, the next time a market promises 'easy money' or hyped opportunities seem too good to be true, pause and ask: Are the fundamentals sound, or is this another bubble waiting to burst?

Disclaimer: This article is for informational purposes only and does not constitute financial advice. It is not produced by the desk of the Kotak Securities Research Team, nor is it a report published by the Kotak Securities Research Team. The information presented is compiled from several secondary sources available on the internet and may change over time. Investors should conduct their own research and consult with financial professionals before making any investment decisions. The above images were generated using AI. Read the full disclaimer here.

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