Bubbles Forever by Robert J. Shiller
Because bubbles are essentially social-psychological phenomena, they are, by their very nature, difficult to control.
As seen in the following charts, the bubbles are definitely getting increasingly difficult to control. In my opinion, it's not a coincidence that the housing bubble was worse than the dotcom bubble.
Click to enlarge.
The high points form an exponential trend. The low points form a 2nd order polynomial trend. In addition to the extremely high r-squared values, both trends have plenty of data points to support them. If current trends remain in place then the following is what we can expect to see in the distant future.
Click to enlarge.
The risks do not end here. Real wages per capita have fallen since 2000. These charts would imply that wages are very important to real net worth per capita, especially if we ever start to hug that blue trend line again. I could definitely see that happen. Just look at the period from 1952 to 1980 on the charts. There was no growth in the household net worth to wages ratio. The 1980s and 1990s are over. What comes next is anyone's guess.
In my opinion, this is long-term uncertainty of biblical proportions, especially for those who thought we were past the worst of it and have gone all in on risk. I can't speak for others, but baby most definitely does not need new shoes.
This is not investment advice.
See Also:
Trend Line Disclaimer
Source Data:
St. Louis Fed: Custom Chart
If I was a betting man, I'd say the high point exponential trend in red has already failed and we just don't know it yet.
ReplyDeleteI've done so many economic exponential trend failures on this blog related over the years that I may be a bit biased though, lol.
Big time gallows humor. Sigh.
Ack. I was up all night again and based on the grammar I just used I can definitely tell I'm getting tired. I'm off.
ReplyDeleteDotcom bubble, housing bubble, maybe central bank bubble next? May not hit the red line but it might be up there.
ReplyDeletefred
Fred,
ReplyDeleteHow about a stuff bubble?
March 27, 2013
The Growth of Self Storage: Market for Improved Visibility
In the last two decades, the self storage industry has evolved rapidly, and the United States makes up almost 90% of the global market with more than 50,000 locations nationwide. The most substantial growth occurred in the early 2000s when the total quantity of properties doubled in size from one billion square feet in 2000 to over two billion in 2005. Although new construction projects have reduced in recent years...
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ReplyDeleteFred
Fred,
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Resilience. Yes! ;)