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We’re 50 years into the biggest asset pricing bubble ever. @jeroboam is correct, but only partially; the US saw many asset prices (especially residential property) stagnate or fall between roughly 1890 and 1965 and it was only in very major wars for a small portion of that period (17-18, 41-45).
What’s key is that expectation of asset price growth is rudely interrupted, whether by the long depression of the early 20th century or the agricultural depression in England. The US should have let the 2018 crash happen, that was the natural point where the market was moving toward a crash. We’ve now spent 5 years in a bizarre Frankenstein market.
Why is it a bad thing that asset prices are high? That seems like a good thing to me.
it is the 'stealing from the future' meme. If long term returns are X and present returns are X+x, then later investors will be worse off if returns mean-revert to X.
What assumptions would lead to this scenario and why do associate it with higher asset prices? Holding absolute returns constant, higher short-term returns should cause asset prices to fall.
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I don’t know that it’s a bad thing, but 50 years of high asset price growth obviously increases inequality.
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Do you want to incentivize people to make things or to buy things and hold them?
Ignoring that the prices are so high because you aeent allowed to make enough of them because those who are holding it are getting too high on their own supply to let it be any oher way.
The whole point of wealth creation is to have wealth. If we were less wealthy, we might produce more, but we'd necessarily be worse off.
Circular reasoning. Wealth is the things you have in absolute, not relative. Expensive assets is relative. We want more assets in total.
I'm not following you. The point of wealth is to be able to spend it on things. We produce things, then we have them, then we use them up. That use we get is why we worked to produce them. How is that circular reasoning?
You're saying that once we have things, we don't want to work as hard to produce more things, so we should have less stuff. But having less stuff defeats the purpose of producing it. The entire point is to have stuff we can use, not to produce it for the sake of producing.
I'm saying that wealth quite literally is having MORE things that we want. And more things implies cheaper, not more expensive.
This is a bad thing because it implies by definition we don't have enough assets. We are asset poor. Things that we truly are wealthy in and have an abundance of are cheap.
Wealth is measured in terms of what goods and services it can buy. Higher real asset prices have more purchasing power and make society richer, controlling for the quantity of those assets.
Asset prices can be high because the quantity of assets is low or because the demand for assets is high.
We are clearly in the second situation, and that's clearly what's implied by "asset pricing bubble", which is a good situation to be in. It raises the value of existing wealth, which increases our purchasing power and causes more wealth to be created.
How is society richer by having less of something?
Certain parts of society is richer, society as a whole no.
It's simple really society A has 5 assets and 10 services per capita, and society B has 4 assets and 10 services per capita, those assets and services are identical. Society A is wealthier. And You can exchange 2 services for 1 asset as opposed to 2.5 services for 1 asset in B.
Which society is richer again?
You are twisting economics in knots to sidestep the simple idea that "more is better".
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Yes, a point I was hinting at is that low volatility increases income inequality.
Let's say there are 2 sequences of annual returns that both have the same total return.
Sequence 1 is 10%, 10%, 10%, 10%, 10%.
Sequence 2 is 40%, -70%, 100%, 50%, 28%
The total return in both cases is 61%, but in sequence 1 leveraged investors will make huge returns, whereas in sequence 2 they will go to zero.
The current economic environment has been called "The Great Moderation". Combined with low interest rates it has allowed leveraged investors to make insane returns. I'll bring up again that TQQQ is up nearly 10,000% since 2010.
That is the #1 cause of wealth inequality increasing, definitely far more than any changes to tax policy.
leverage and the fact that large tech companies have gotten very good over the past decade at making huge profits and being at the center of economic activity and being unchallenged politically , like regulation. High interest rates does not hurt that much given that these companies are so dominant and have little or no debt, and that rising interest rates and inflation is more like a shifting of the y-axis than potentially costly for business. Advertisers bid higher on meta/Google ads, and those costs are passed down to consumers, who earn higher wages, etc.
It's not just the returns, it's the consistency of the returns that allows TQQQ to flourish. I'm not going to look up the prospectus again right now, but the returns of TQQQ vary massively by volatility. The lower the volatility, the greater the returns.
The elimination of the business cycle by the Federal Reserve and Keynesian stimulus have let leveraged speculators flourish.
This is one way in which low interest rates have contributed to excess return for TQQQ investors.
The other way is simply that low yielding bonds are such shitty investments that people chase returns and drive up the price of speculative investments such as QQQ, Bitcoin, wine, art, baseball cards, homes. Okay, pretty much everything.
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I got a solid lesson in this fact watching Crypto Markets over the past 7 years.
From an outside perspective, if you invested in Bitcoin when it was low, and held it, you've made out like a bandit, just insane wealth accumulation (assuming you cash in). But i would BET that the 'average' Bitcoiner (to say nothing of the average crypto-trader degen) either made minimal gains or even lost money over that time for the exact reason you say. They blew themselves up in a volatile market.
And I say this as someone who DID buy Bitcoin early in it's life, but cashed out before it hit recent ATH's to maneuver myself into a better-paying job because I got sick and tired of worrying that my primary source of net worth could drop by half (or more!) overnight.
So there are still a lot of insanely wealthy bitcoiners out there, but I bet the GINI coefficient rivals Brazil.
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