Authored by Adam Sharp via DailyReckoning.com,

Remember Beanie Babies? In the late 1990s, they were all the rage.

Tiny stuffed animals which cost less than $1 to manufacture were selling for thousands of dollars at peak.

The Princess Diana memorial bear once fetched $500+, and today it sells for around $5. Peanut the Royal Blue Elephant hit $5,000 in 1999, and today a certified mint condition specimen might fetch $50.

The BB craze started in 1997, just as the dotcom bull market was starting to go vertical. At one point, fully 10% of all eBay listings were Beanie Babies.

The timing was no coincidence. Speculation is contagious. Once a society catches the bug, it causes all sorts of strange effects.

The Beanie Baby Bubble (BBB) fell apart in mid-1999. Shortly before the dotcom bubble peaked in March of 2000.

Labubus Gone Wild

Over the past year, a new plush toy craze has gone viral. Labubus. They’re small, demonic-looking creatures sold by a Chinese company called Pop Mart:

Source: Pop Mart

The unique thing about these toys is that you initially had to buy “blind boxes”, where you don’t know which doll you’re getting. It could be an ultra rare valuable one, or a common one. The gambling aspect made it incredibly viral. For months they constantly sold out the moment more came in stock.

One notable Labubu sold for $10,585 earlier this year. It was a limited-edition Vans Old Skool Vinyl Plush Doll:

Over the summer, Forbes ran a piece on that sale, even saying that Labubus might be “good investments”.

In June, a unique 4 foot tall Labubu sold for a whopping $170,000 in China.

But since then, interest has dried up. Less than 3 months later, the same Forbes editor updated her Labubu outlook.

Is The Labubu Craze Ending? Prices Are Down And Inventory Is Up As Eyes Turn To A New Toy

On eBay, where sellers have made upwards of $10,000 on special edition Labubus, few dolls are listed for more than $2,000 and none of 60 most expensive listings have garnered bids.

At the height of the Labubu craze earlier this year, the toys sold out in a matter of seconds each time they re-stocked on the Pop Mart website and resellers were making hundreds to thousands of dollars on each wacky, toothy doll.

The high prices and low inventory drove a rise in counterfeit Labubu and stores with the dolls in stock were being overrun by customers brawling and yelling at each other to secure their toy.

I checked eBay today, and none of the most expensive Labubus have any bids to speak of. Sellers are still trying to sell the most rare ones at their peak prices, and nobody’s biting.

It looks like Labubu demand has hit a wall.

Anecdotally, my middle schooler reports that Labubus are no longer as cool as they once were.

Is Speculative Mania Peaking?

The Labubu craze is indicative of the state of markets. Just as Beanie Babies were a product of the dotcom bubble. Signs of the times.

I hate to keep hammering this point home, but it’s abundantly clear we’re in the midst of a bubble. One that could be close to peaking.

The crypto market is giving up much of its gains. Momentum stocks have hit a wall, at least for now. And even big tech is experiencing its first turbulence since the April selloff.

When this thing falls apart, the Fed will undoubtedly step in with much lower rates and unprecedented QE. But based on the size of this bubble, even with tremendous money printing, it could take a decade or more for hot stocks to recover.

I don’t claim to know exactly when the bubble will pop. It could be tomorrow, or a year from now.

Regardless, I’m steering clear of hot tech names (besides retirement target date fund exposure), and sticking with my great rotation theory. We’re doing very well in cheap emerging markets, natural resources, and gold/silver/miners. So I don’t see a need to speculate on overpriced momentum stocks at this time.

I sleep much better not having to worry about the spectre of dotcom-style 70% drawdowns.