The Beanie Baby Bubble (EP.192)

Episode Summary

Executive Summary: The episode centers on the Beanie Babies bubble as a lens for understanding today’s collectibles, crypto, and retail-speculation manias. Ben and Michael compare scarcity-driven hype across Beanie Babies, NBA Top Shot, crypto punks, meme stocks, and sports betting, while arguing that negative real rates, excess liquidity, and social media amplify FOMO. They also discuss charity, portfolio risk, Coinbase, Bitcoin, and behavioral finance.

Main Topics: Beanie Babies as the template for modern bubbles (Priority: 5/5): The hosts unpack the Beanie Babies craze—especially Ty Warner’s scarcity strategy, auction dynamics, and novice-driven price discovery—as an early model for today’s collectibles and digital assets. NFTs, NBA Top Shot, and crypto collectibles (Priority: 5/5): They connect Beanie Babies to NFTs, emphasizing the appeal of digital scarcity, creator royalties, and the emotional rush of trading Top Shot moments despite bubble-like pricing. Speculation, FOMO, and retail trading mania (Priority: 5/5): The conversation broadens to meme stocks, penny stocks, sports cards, Robinhood activity, and the huge rise in retail trading volume, framing the market as one big speculation trade. Real rates, liquidity, and asset price distortions (Priority: 4/5): They argue that ultra-low or negative real yields across bonds help explain why investors chase risky alternatives like Bitcoin, crypto punks, and speculative equities. Behavioral finance and crowd psychology (Priority: 4/5): They read from William Bernstein’s new book on financial manias, highlighting how promoters, the public, the press, and politicians all participate in speculative bubbles. Charitable giving amid wealth and inequality (Priority: 3/5): The hosts reflect on feeling uneasy about rising asset prices and discuss automating charitable donations to local causes and disaster relief as a practical response. Listener questions and personal finance tradeoffs (Priority: 3/5): The episode closes with advice on inherited windfalls, home payoff decisions, retirement saving in your 20s, and the balance between saving habits and living life early on.

Key Arguments: Scarcity is the engine behind many bubbles: Beanie Babies, NFTs, and crypto collectibles all rely on artificial limited supply to generate demand. Novice investors are especially vulnerable to auction dynamics and FOMO, which can create self-reinforcing price spikes detached from fundamentals. NFTs may be absurd in many cases, but they still have real use cases for artists through direct distribution and embedded royalties. The current mania is fueled by ‘house money’ from crypto and trading gains, making digital collectibles feel less like cash and more like chips at a table. Low or negative real yields push investors toward speculative assets because traditional fixed income offers little after inflation. Behavioral and narrative forces matter as much as valuation: people buy stories, identity, and social proof, not just cash flows. Even if most speculative assets go to zero in a downturn, a minority may survive and become durable new markets or products. Tail-risk hedging and other defensive strategies can improve portfolio outcomes if used actively and rebalanced, despite negative expected carry. For a windfall or inherited cash, a five-to-ten-year horizon can justify a balanced portfolio rather than an immediate payoff or all-cash approach. Saving in your 20s is useful for habit formation, but not at the expense of unrealistic austerity if income is low and future earnings growth is likely.

Data Points: Beanie Babies share of eBay sales: 10% - In 1999, Beanie Babies accounted for a significant portion of eBay’s sales during the bubble. Beanie Baby inventory held back: $100 million - The company reportedly kept a large inventory in a warehouse to maintain scarcity and support prices. Garbage Pail Kids price increase: $300 to $4,000 - A listener cited a 1985 Garbage Pail Kids item rising sharply from early 2020 to the present. Michael Jordan rookie card price: $740,000 - Used as an example of how far collectibles have run up. CryptoPunks supply: 10,000 unique characters - Referenced as a deliberately scarce NFT collection. CryptoPunks lowest listed price: about $40,000 - The cheapest available Punk was cited as a starting point for market pricing. CryptoPunks highest cited price: $2 million - Used to illustrate the top end of NFT valuations. Substack paid subscriptions: 500,000+ - Packy McCormick’s point about the growing power of individual creators. Top 10 Substack writers earnings: over $15 million - Illustrates how individual creators can generate major revenue. NBA Top Shot moment trade example: $500 to $800 in under 12 hours - A personal example of rapid speculative gains in moments trading. Retail trading dollar value: up 85% year over year - John Street Capital data showing larger dollar flows into retail trading. Retail trading number of trades: up 300% year over year - Indicates many newer traders are trading smaller sizes. Robinhood assets: $65 billion - Cited as evidence of the scale of retail brokerage activity. Robinhood median account size: $240 - SEC-related data used to highlight the small size of many accounts. Robinhood average account size: $5,000 - Used alongside median to show account-size dispersion. Michigan online gambling revenue: $43 million in the first 10 days - After legalization, early online gambling activity was large. Michigan online gambling handle: $115 million in the first 10 days - Total amount wagered/passed through in the initial period. Bitcoin price example: $200 in 2015 to $53,000 at the time - Used to show how higher prices can feel more legitimate over time. Bitcoin supply in circulation: about 4.2 million liquid coins - Cited from the Wall Street Journal as evidence of constrained supply. Professional money entering Bitcoin since September: $11 billion - Illustrates that institutional inflows may be smaller than headline market moves imply. Coinbase valuation: just over $100 billion - Private-market valuation ahead of public listing. Coinbase revenue and net income: $691 million revenue; $141 million net income - First nine months of 2020 financials used to frame valuation concerns. Top-rated junk bond yield: below 3% - Shows how low yields have become in credit markets. Potential U.S. growth forecast: 7% full-year growth in 2021 - Goldman Sachs outlook cited as a strong macro backdrop. Vaccination forecast: 50% of population vaccinated by May - Goldman Sachs estimate in the episode. Unemployment forecast: 4.1% - Goldman Sachs forecast for year-end 2021. Core PCE forecast: 1.85% - Goldman Sachs inflation projection. S&P 500 EPS recovery: 2% above pre-pandemic high - Goldman noted earnings had already surpassed prior peaks. Japan investment example: 7.7 million yen vs. 4.4 million yen - A monthly 10,000 yen MSCI Japan investment since 1989 outperformed a 1% bank account.

Pivotal Quotes: "The next big thing will start out looking like a toy." — Chris Dixon: Referenced by Packy McCormick to frame NFTs and crypto collectibles as early-stage phenomena. "Genies don't go quietly back into bottles." — Packy McCormick: Used to argue that once new speculative or creator-driven markets emerge, they rarely disappear completely. "Financial manias can be thought of as a tragedy like Hamlet or Macbeth with sharply defined characters..." — William Bernstein: Read from The Delusions of Crowds to describe the recurring cast of promoters, public, press, and politicians in bubbles.

Implications: Listeners should expect more speculation, not less, as liquidity, social media, and creator platforms continue to fuel new asset classes. The practical lesson is to separate entertainment speculation from core investing, keep risk small, and recognize that some “toys” may become enduring markets.