Yes, It Is Different This Time

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

Most people would be horrified by a 40% decline in their investments, but when bubbles pop, expect a 90%+ drop.

Yes, It Is Different This Time - BullionBuzz - Nick's Top Six
Close-up of a black retro alarm clock in the room

The irony of the panic about real-world inflation generated by rising wages is 2-fold: The status quo never mentions the rampant inflation in assets because the wealthy got wealthier, so asset inflation deserves to be permanent; and wages have been hammered since 1975 ($50 trillion has been transferred from the workforce to capital in the past 45 years).

The wealthy had no complaint about wages losing purchasing power for 45 years, but the first little blip up in wages’ purchasing power causes a panic. Now that soaring asset inflation and deflation of labour have reversed, assets will deflate and wages will rise, sending the wealthy and the media into panic.

There is more than reversion to the mean or other technical dynamics at work: The obscene wealth that’s been transferred to the top 0.1% is now a political target.

According to official inflation, $50 in 1985 is now worth $132. As a result of cartels, monopolies and asset inflation, real-world costs have eaten wage-earners alive for decades.

Asset inflation will reverse into asset deflation for many reasons, and wage deflation will reverse into inflation (i.e. gaining purchasing power) for many reasons.

Most people think investing isn’t gambling. But asset bubbles are not the result of investing, they’re the result of speculation running to extremes. We’ve forgotten what happens when bubbles pop.

The US stock market was worth $53 trillion at the beginning of 2022. If corporate profits fall to $1 trillion annually, and the price/earnings ratio drops to a historically reasonable 11, US stocks will be worth $11 trillion, a decline of roughly $40 trillion or 80%.

Recall that US stocks fell to $11 trillion in value in 2002 and again in 2008. Impossible? That’s what we thought in 2000 and 2008 before the bubbles popped. This is the third bubble, the most gargantuan, the most stretched, and so the reversal will be the most extreme.

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