An appropriate article for the 35th anniversary of one of the largest stock market crashes in history. From Charles Hugh Smith at oftwominds:
When the $400 trillion global credit-asset bubbles all pop, maybe there will only be $100 trillion in wealth sloshing around.
Getting rich in a bubble economy isn’t that hard as long as you were rich enough to buy assets at the start of the bubble.
For example, some friends bought a modest old house (built 1916, under 1,000 square feet) in the East Bay / San Francisco Bay Area for $135,000 in late 1996.
They invested money and sweat equity in improvements (new heating and wiring, etc.) and sold it for $545,000 in 2004.
Now the house is worth over $1 million.
Official inflation since 1997 is $1 then is now $1.80, so if the value of the house had kept up with inflation the current value would be $250,000.
Studies have found housing tends to gain about 2% net of inflation annually, so with this added in, the house “should be” worth about $325,000.
So the house is worth triple what historical (pre-bubble) valuations would suggest.
The stock and bond markets have yielded similar stellar results over the past 25 years, roughly double the handsome historical expected returns.
Other investments have yielded spectacular returns. Many tech stocks have risen ten-fold or more, and those who bought Bitcoin for $650 in August of 2016 when I projected a price target of $17,000 (absurd at the time) could have reaped a nearly 100-fold gain had they held on and sold at the peak around $65,000 in November 2021.
Not everyone who owned or bought assets in the early years of the credit-asset bubble have become wealthy, but most have done well for themselves.
Going forward, the tricky part will be keeping this wealth.