The Triad Perspective
     


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Not Very Emu-sing
 
I'm a sucker for bubbles. Not soap bubbles, or bathtub bubbles. Investment bubbles. Whenever I hear about one, I can't help myself.
 
For instance, I recently read in The Economist magazine about a bubble that must have slipped by me at the time. The great Texas Emu bubble of the 1990s. Emu bubble? What's that?
 
An emu is an animal, somewhat like an ostrich. They're native to Australia, and they're big--six feet tall and 120 pounds--and fast--30 miles per hour. Oh yeah, they also kick. In general, not easy to handle.

   
"Catch me if you can"

Texans started to raise the emu in the 1980's as a lower-fat alternative to beef. The emu could also provide oil for lotions, skin for leather, feathers for clothes, and giant eggs for huge omelettes.
 
As with many bubbles, the initial investors did well. The price of emus climbed from several hundred dollars to over $30,000 for a breeding pair. Success begets success. Breeding emus kicked into high gear.
 
Emus lay 5 to 15 eggs each and can do so for 16 years. With roughly 12 chicks surviving per year, a breeding pair can give birth to over 100 breeding pairs in 5 years, and 36,000 within 10 years!!
 
What happened? It's fairly obvious that, like rabbits, the emus quickly multiplied. That wouldn't have been a problem had there been sufficient demand. Unfortunately, Texans never developed much of an appetite for emu meat. Or emu eggs. Or emu anything.
 
By 1998, Texas was awash in emus. Emus were essentially worthless. The boom turned to bust. People couldn't give them away. Many were abandoned. Some people cut their fences, hoping the emus would disappear. To this day there are still feral emus roaming the Texas countryside.
 
Had the emu "investor," or I should say speculator, done his or her homework, it probably would have revealed a poor business case. Rapid breeding without a clear case of matching demand usually isn't a good business model. But as in all speculative manias, rational thought was put aside in favor of good old-fashioned greed and fear of missing out on the boom.
 
The stock market is occasionally gripped with similar human emotions. Fears recede and give way to greed instincts in some investors. More people are swept up in the emotional rollercoaster and forget to calmly assess the facts. Without true fundamental support the speculative fervor collapses and someone is left holding the bag. And the bag is usually empty. Not a single emu egg left.
-John Heldman, CFA




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