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42-688: Despite the term, part of the decade was marked by an economic crisis, which greatly worsened when the Panic of 1893 set off a widespread economic depression in the United States that lasted until 1897. The term Gay Nineties began to be used in the 1920s in the United States, and it is believed to have been created by the artist Richard V. Culter , who first released a series of drawings in Life magazine titled "the Gay Nineties" and later published

84-595: A coalition of poor, white cotton farmers in the South (especially North Carolina, Alabama and Texas) and hard-pressed wheat farmers in the Plains States (especially Kansas and Nebraska), the Populists represented a radical form of agrarianism and hostility to elites, cities, banks, railroads, and gold. The Free Silver movement arose from a synergy of farming and mining interests. Farmers sought to invigorate

126-453: A new economy where the old stock valuation rules may no longer apply. This type of thinking helps to further propagate the bubble whereby everyone is investing with the intent of finding a greater fool . Still, some analysts cite the wisdom of crowds and say that price movements really do reflect rational expectations of fundamental returns. Large traders become powerful enough to rock the boat, generating stock market bubbles. To sort out

168-616: A 1940 MGM film starring Judy Garland and Mickey Rooney . Panic of 1893 The Panic of 1893 was an economic depression in the United States . It began in February 1893 and officially ended eight months later, but the effects from it continued to be felt until 1897. It was the most serious economic depression in history until the Great Depression of the 1930s. The Panic of 1893 deeply affected every sector of

210-562: A book of drawings with the same name. Novels by authors like Edith Wharton and Booth Tarkington documented the high life of the "old money" families. By the 1920s, the decade was nostalgically seen as a period of pre- income tax wealth for a newly emergent "society set". The railroads, the agricultural depression of the Southern United States , and the dominance of the United States in South American markets and

252-1013: A combination of purchasing gold from smelters, convincing its members to purchase Treasury bonds with gold, inspiring confidence in bond and railroad securities investors, and unofficial capital controls by convincing members and gold-exporting houses to "ship no gold" overseas. Stock market bubble A stock market bubble is a type of economic bubble taking place in stock markets when market participants drive stock prices above their value in relation to some system of stock valuation . Behavioral finance theory attributes stock market bubbles to cognitive biases that lead to groupthink and herd behavior . Bubbles occur not only in real-world markets, with their inherent uncertainty and noise, but also in highly predictable experimental markets. Other theoretical explanations of stock market bubbles have suggested that they are rational, intrinsic, and contagious. Historically, early stock market bubbles and crashes have their roots in financial activities of

294-409: A conservative or contrarian position as a bubble builds results in performance unfavorable to peers. This may cause customers to go elsewhere and can affect the investment manager's own employment or compensation. The typical short-term focus of U.S. equity markets exacerbates the risk for investment managers that do not participate during the building phase of a bubble, particularly one that builds over

336-474: A continuing trend downward from a high of 3 and 1/8 pence in 1891. In February 1895, the U.S. Government turned to private financial institutions to underwrite the sale of Treasury bonds , stabilize exchange rates , and return the Treasury to its gold reserve requirement. The result was a contract drawn with what was called "The Morgan-Belmont Syndicate". The persistent balance of payments deficit in

378-508: A contributing factor to the depression. The People's Party , also known as the ' Populists ', was an agrarian -populist political party in the United States. From 1892 to 1896, it played a major role as a left-wing force in American politics. It drew support from angry farmers in the West and South. It was highly critical of capitalism , especially banks and railroads, and allied itself with

420-494: A limit on volatility. However, once positive feedback takes over, the market, like all systems with positive feedback, enters a state of increasing disequilibrium . This can be seen in financial bubbles where asset prices rapidly spike upwards far beyond what could be considered the rational "economic value", only to fall rapidly afterwards. Investment managers, such as stock mutual fund managers, are compensated and retained in part due to their performance relative to peers. Taking

462-543: A run on gold in the U.S. Treasury . Specie was considered more valuable than paper money; when people were uncertain about the future, they hoarded specie and rejected paper notes. During the Gilded Age of the 1870s and 1880s, the United States had experienced economic growth and expansion, but much of this expansion depended on high international commodity prices. Exacerbating the problems with international investments, wheat prices crashed in 1893. In particular,

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504-608: A series of failed attempts to restore reserves by issuing bonds and depreciating specie issued for legal tender , the Treasury negotiated a contract with the Morgan-Belmont Syndicate to restore confidence in the government's ability to maintain the convertibility of legal tender into gold. The full list of syndicate members was not made public, however the contract named Drexel, Morgan & Co ., A. Belmont & Co., J. S. Morgan & Co. , and N. M. Rothschild & Sons . The syndicate achieved its goals through

546-518: Is an over abundance of IPOs in a bubble market, a large portion of the IPO companies fail completely, never achieve what is promised to the investors, or can even be vehicles for fraud. Emotional and cognitive biases (see behavioral finance ) seem to be the causes of bubbles, but often, when the phenomenon appears, pundits try to find a rationale, so as not to be against the crowd. Thus, sometimes, people will dismiss concerns about overpriced markets by citing

588-567: Is wrong. For closed-end country funds, observers can compare the stock prices to the net asset value per share (the net value of the fund's total holdings divided by the number of shares outstanding). For experimental asset markets, observers can compare the stock prices to the expected returns from holding the stock (which the experimenter determines and communicates to the traders). In both instances, closed-end country funds and experimental markets, stock prices clearly diverge from fundamental values. Nobel laureate Dr. Vernon Smith has illustrated

630-540: The Caribbean meant that industrialists of the Northern United States seemed to have been doing very well. It was also the name of a nostalgic radio program in the 1930s, hosted by a prominent composer of popular songs of the 1890s, Joe Howard , as well as an 1890s-themed New York cafe, "Bill's Gay Nineties", during that same period. From the 1920s to the 1960s, filmmakers had a nostalgic interest in

672-560: The National Cordage Company (NCC), then the most actively traded stock, caused its lenders to call in their loans immediately, and the company went into bankruptcy receivership as a result. The company, a rope manufacturer, had tried to corner the market for imported hemp. As demand for silver and silver notes fell, the price and value of silver dropped. Holders worried about a loss of face value of bonds, and many became worthless. A series of bank failures followed, and

714-609: The Northern Pacific Railway , the Union Pacific Railroad and the Atchison, Topeka & Santa Fe Railroad failed. This was followed by the bankruptcy of many other companies; in total over 15,000 companies and 500 banks, many of them in the West, failed. According to high estimates, about 17%–19% of the workforce was unemployed at the panic's peak. The huge spike in unemployment, combined with

756-865: The Pullman Strike . After their defeat in 1896, the Democrats did not regain control of any branch of the Federal Government until 1910 . A rarely talked-about effect is the Love Canal disaster. People who were earlier keen to invest in the Love Canal stopped doing so, which led to the abandonment of its construction. Ultimately the canal ended up being a large toxic waste repository, with severe negative environmental effects. Love Canal remains synonymous with environmental pollution and degradation. The Panic of 1893 affected many aspects of

798-544: The U.S. Treasury fell to a dangerously low level. This forced President Cleveland to borrow $ 65 million in gold from Wall Street banker J.P. Morgan and the Rothschild banking family of England , through what was known as the Morgan-Belmont Syndicate His party suffered enormous losses in the 1894 elections , largely being blamed for the downward spiral in the economy and the brutal crushing of

840-482: The shipping industry , both by rail and maritime. It arrested the acquisition of ships and rolling stock and depressed shipping rates. The bad omen of investors switching from equity based stocks to constant return bonds in 1894 was mirrored in the corporate finance actions of railroads which reduced their acquisition of rolling stock . Railroad expansion including capital expenditures rose again in 1895, but slowed in 1897 during another economic trough. In 1893,

882-899: The 17th-century Dutch Republic , the birthplace of the first formal (official) stock exchange and market in history. The Dutch tulip mania , of the 1630s, is generally considered the world's first recorded speculative bubble (or economic bubble ). Two famous early stock market bubbles were the Mississippi Scheme in France and the South Sea bubble in England. Both bubbles came to an abrupt end in 1720, bankrupting thousands of unfortunate investors. Those stories, and many others, are recounted in Charles Mackay 's 1841 popular account, " Extraordinary Popular Delusions and

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924-680: The 1890s as seen in the films The Naughty Nineties , She Done Him Wrong , Belle of the Nineties , The Strawberry Blonde , My Gal Sal , The Nifty Nineties (a Mickey Mouse cartoon) , By the Light of the Silvery Moon , Hello, Dolly! , and Heaven Can Wait . Roger Edens ' song "The Gay Nineties" opens a production number spoofing period melodramas in Strike Up the Band ,

966-476: The 1890s which drained the Treasury gold reserves, caused concern from both domestic and foreign investors that the U.S. would abandon the gold standard. This prompted further gold withdrawals and bond liquidations which exacerbated the deficit. By February 2, 1895, the Treasury's gold reserves fell to approximately $ 42 million, well below the $ 100 million level required by the Resumption Act of 1875 . After

1008-507: The IPOs at high premiums. It only took a few months for the premiums in closed-end country funds to fade back to the more typical discounts at which closed-end funds trade. Those who had bought them at premiums had run out of "greater fools". For a while, though, the supply of "greater fools" had been outstanding. A rising price on any share will attract the attention of investors. Not all of those investors are willing or interested in studying

1050-642: The Madness of Crowds ". The two most famous bubbles of the twentieth century, the bubble in American stocks in the 1920s just before the Wall Street Crash of 1929 and the following Great Depression , and the Dot-com bubble of the late 1990s, were based on speculative activity surrounding the development of new technologies. The 1920s saw the widespread introduction of a range of technological innovations including radio , automobiles , aviation and

1092-610: The Pullman Company was a railroad car company, this only increased the difficulty of acquiring rolling stock. The maritime industry of the United States did not escape the effects of the Panic of 1893. The total gross registered merchant marine tonnage employed in "foreign and coastwise trade and in the fisheries", as measured by the U.S. Census between 1888 and 1893, grew at a rate of about 2.74%. In 1894, U.S. gross tonnage decreased by 2.9%, and again in 1895 by 1.03%. In 1894,

1134-629: The closed-end country fund phenomenon with a chart showing prices and net asset values of the Spain Fund  [ zh ] in 1989 and 1990 in his work on price bubbles. At its peak, the Spain Fund traded near $ 35, nearly triple its Net Asset Value of about $ 12 per share. At the same time the Spain Fund and other closed-end country funds were trading at very substantial premiums, the number of closed-end country funds available exploded thanks to many issuers creating new country funds and selling

1176-422: The competing claims between behavioral finance and efficient markets theorists, observers need to find bubbles that occur when a readily available measure of fundamental value is also observable. The bubble in closed-end country funds in the late 1980s is instructive here, as are the bubbles that occur in experimental asset markets. According to the efficient-market hypothesis , this doesn't happen, and so any data

1218-903: The deployment of electrical power grids . The 1990s was the decade when Internet and e-commerce technologies emerged. Other stock market bubbles of note include the Encilhamento occurred in Brazil during the late 1880s and early 1890s, the Nifty Fifty stocks in the early 1970s, Taiwanese stocks in 1987–89 and Japanese stocks in the late 1980s . Stock market bubbles frequently produce hot markets in initial public offerings , since investment bankers and their clients see opportunities to float new stock issues at inflated prices. These hot IPO markets misallocate investment funds to areas dictated by speculative trends, rather than to enterprises generating longstanding economic value. Typically when there

1260-419: The destitute. Facing starvation, people chopped wood, broke rocks, and sewed by hand with needle and thread in exchange for food. In some cases, women resorted to prostitution to feed their families. To help the people of Detroit, Mayor Hazen S. Pingree launched his "Potato Patch Plan", which were community gardens for farming. President Grover Cleveland was blamed for the depression. Gold reserves stored in

1302-741: The economy and produced political upheaval that led to the political realignment and the presidency of William McKinley . The Panic of 1893 has been traced to many causes, one of them pointing to Argentina; investment was encouraged by the Argentine agent bank, Baring Brothers . However, the 1890 wheat crop failure and a failed coup in Buenos Aires ended further investments. In addition, speculations in South African and Australian properties also collapsed. Because European investors were concerned that these problems might spread, they started

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1344-459: The economy and thereby end deflation , which was forcing them to repay loans with increasingly expensive dollars. Mining interests sought the right to turn silver directly into money without a central minting institution. The Sherman Silver Purchase Act of 1890, while falling short of the Free Silver movement's goals, required the U.S. government to buy millions of ounces of silver above what

1386-511: The economy deepened, people rushed to withdraw their money from banks, and caused bank runs . The credit crunch rippled through the economy. A financial panic in London combined with a drop in continental European trade caused foreign investors to sell American stocks to obtain American funds backed by gold. The economic policies of President Benjamin Harrison have been characterized as

1428-548: The inauguration of U.S. President Grover Cleveland , with the appointment of receivers for the Philadelphia and Reading Railroad , which had greatly overextended itself. Upon taking office, Cleveland dealt directly with the Treasury crisis and convinced Congress to repeal the Sherman Silver Purchase Act , which he felt was mainly responsible for the economic crisis. As concern for the state of

1470-512: The intrinsics of the share and for such people the rising price itself is reason enough to invest. In turn, the additional investment will provide buoyancy to the price, thus completing a positive feedback loop. Like all dynamic systems, financial markets operate in an ever-changing equilibrium, which translates into price volatility . However, a self-adjustment ( negative feedback ) takes place normally: when prices rise more people are encouraged to sell, while fewer are encouraged to buy. This puts

1512-523: The labor movement. Established in 1891 as a result of the Populist movement, the People's Party reached its height in the 1892 presidential election , when its ticket, consisting of James B. Weaver and James G. Field , won 8.5% of the popular vote and carried five states (Colorado, Idaho, Kansas, Nevada, and North Dakota), and the 1894 House of Representatives elections when it won nine seats. Built on

1554-628: The loss of life savings kept in failed banks, meant that a once-secure middle-class could not meet their mortgage obligations. Many walked away from recently built homes as a result. As a result of the panic, stock prices declined. Five hundred banks closed, 15,000 businesses failed, and numerous farms ceased operation. The unemployment rate hit 25% in Pennsylvania, 35% in New York, and 43% in Michigan. Soup kitchens were opened to help feed

1596-438: The opening of numerous mines in the western United States led to an oversupply of silver, leading to significant debate as to how much of the silver should be coined into money (see below). During the 1880s, American railroads experienced what might today be called a " bubble ": investors flocked to railroads, and they were greatly over-built. One of the first clear signs of trouble came on 20 February 1893, twelve days before

1638-487: The rate for a bushel of wheat by rail dropped from 14.70¢ in 1893 to 12.88¢. This rate continued to decrease, reaching a terminal rate in 1901 of 9.92¢ and never reached 12 cents between 1898 and 1910. Between 1893 and 1894, average shipping rates by lake or canal per wheat bushel decreased by almost 2 cents, from 6.33¢ to 4.44¢. Rates on the transatlantic crossing from New York City to Liverpool also decreased, from 2 and 3/8 pence to 1 and 15/16 pence, but this reflected

1680-424: The total railroad mileage in the U.S. was 176,803.6 miles. In 1894 and 1895, railroads only expanded 4,196.4 miles, although 100,000 miles of rail was added from 1878 to 1896. In 1893, the year following the panic, one fourth of all rail mileage went into receivership. The U.S. Census placed this value at close to $ 1.8 billion (not adjusted for inflation), the largest amount recorded between 1876 and 1910. This

1722-593: Was over $ 1 billion (also not adjusted for inflation) more than the next largest amount, in 1884. In 1894, the U.S. Army intervened during a strike in Chicago to prevent property damage. The Pullman Strike began at the Pullman Company in Chicago after Pullman refused to either lower rent in the company town or raise wages for its workers due to increased economic pressure from the Panic of 1893. Since

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1764-457: Was required by the 1878 Bland–Allison Act (driving up the price of silver and pleasing silver miners). People attempted to redeem silver notes for gold. Ultimately, the statutory limit for the minimum amount of gold in federal reserves was reached and U.S. notes could no longer be redeemed for gold. Investments during the time of the panic were heavily financed through bond issues with high-interest payments. Rumors regarding financial distress at

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