Our ‘Wealth’: Cloud Castles in The Sky

The comments below are an edited and abridged synopsis of an article by Charles Hugh Smith

Buyers know there will always be a greater fool willing to pay more for an over-valued asset because the Fed has promised us that it will always be the greater fool.

Our ‘Wealth’: Cloud Castles in The Sky | BullionBuzz | Nick's Top Six
Luftschloss am Himmel, Traumhaus

Nobody wants to hear that most of their ‘wealth’ is nothing more than Cloud Castles in the Sky that will dissipate in the faintest breeze, but there it is: That which was conjured out of thin air will return to thin air.

Smith has assembled charts that reflect the illusion of financial wealth that has a death grip on the public psyche. Something for nothing is a powerful attractor, but it doesn’t offer the narrative that the self-important demand: “I earned this by working hard and being smart.” Sure… It had nothing to do with currency being created out of thin air and made available to insiders, financiers, banks, etc., or being able to leverage this new money into ever-larger bets, all guaranteed by the Fed to be winning trades.

Tangible assets—real assets—are at historic lows relative to financial-bubble assets. Tangible assets represent such a meager proportion of total assets that we assume they could slip to zero without affecting our wealth much at all.

If we compare financial-bubble assets to America’s GDP, a (flawed) measure of real-world activity, we find Cloud Castles in the Sky are worth over six times the nation’s real-world economy. This reflects what happens to the valuations of Cloud Castles in the Sky when money is created out of thin air and leveraged into illusions of wealth.

Two charts illustrate the only dynamic driving assets higher: The Fed is the greater fool. Assets are chasing their own tails higher, disconnected from the real world, a reality visible in the chart of IWM, the small-cap index. Examining the recent rocket launch higher explains why this is completely disconnected from previous decades’ valuations.

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