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New bulb investment scheme seen as second tulipmania

Promised returns far from certain

Tags: Excerpts from the Windmill

LISSE, the Netherlands - Investing in the development of new kinds of tulips is being compared to playing the ponies or gambling. Bulb growing experts call the hedge fund Novacap Floralis a speculative bubble, bound to burst as happened in the early part of the 17th century. That craze became known as tulipmania.

The fund promises a 30 percent return per annum. Financial analysts have joined bulb growing experts in doubting that the fund will be able to sustain this claim. They point to dozens and dozens of other high-yield investment schemes which have failed over the years. Mentioned as well are the thousands of such schemes that proved to be fraudulent, even though they were launched as legitimate investment funds.

Only a few

Last year, some 400 new tulip varieties were registered in the Netherlands with the Royal General Society for Bulb Culture. According to experts it is impossible to predict which of the 400 could have a measure of success. The number of new varieties has increased dramatically in the last forty years, making the odds for success even greater.

Bulb propagators routinely plants thousands of seeds a year. Bulbs develop over a period of five years, after which the new variety selection process starts, often resulting in no more than one a year - per grower - making the cut and being reported to the Society. Lucrative ‘wind trade’

In 1630s, the Dutch upper class was willing to pay exorbitant prices for new tulip varieties. Growers and traders made huge amounts of money, attracting ordinary people to the bulk market as well. Speculation became rampant. All one had to do to become rich was to plant the tulip bulbs and wait for the results. Or so it was thought. The buying and selling of a product as invisible as un-sprouted flowers came to be called the ‘wind trade’. People were desperate to cash in on the bulb-trading frenzy. Businesses and homes were sold and family jewels traded.

Local governments unsuccessfully tried to control and outlaw this speculation-based commerce. The market ran out of steam in 1637, when bulb traders could not get the usual inflated prices for their bulbs. Word quickly spread, and the market crashed.

Thousands of ordinary Dutchmen, but also well-to-do businessmen, among whom some of the country’s leading economic powerbrokers, were ruined and left destitute.

Read more about this in the book Tulipomania, by Mike Dash. CAN$23.95/US$16.95.