Fundamentals

3 parts of the US Economy

  • Capital Goods: cars, construction, major industrial equipment.

  • Discretionary Spending: fine dining, entertainment, travel, high fashion, jewelry, art.

  • Necessities: food, shelter, clothing, energy, health care 

Bubbles

  • A bubble occurs simply when the price of something rises far higher than what the thing is really worth.-Man v. Markets by Hirsch.

  • Asset growth that is not firmly pinned to some underlying real economic driver is not sustainable.-Aftershock Economy by Wiedower.

  • Beginning with our decision in the early 1980s to run large government deficits, six co-lined bubbles have been growing bigger, each working to lift the others, all booming and supporting the US Economy:-Aftershock Economy by Wiedower.

    • Real Estate: Income between 2001-2006 grew 2% while home prices grew 80%.

    • Stock Market: The Dow rose 300% from 1928-1982 (54 years). Yet in the next 20 years the Dow increased an astonishing 1200%, growing 4x as fast as before, but without 4x the growth in company earnings or our GDP.

    • The Dow Rose 14 fold from 1982 to 2007, while company earnings rose only three fold for the same period. Earnings rise about as fast as GDP.

    • Private Debt

    • Discretionary Spending

    • Dollar: Our dollars rose in value because of rising demand for dollars to make investments in our bubbles. Now the falling bubbles will eventually create falling-value dollars.

    • Government Debt

Inflation

  • Inflation has averaged around 4.2 percent over the last seventy years.-Complete Guide to Money by Ramsey.