So, there was “no meaningful Bubble Action between 1995 and 1998”? What about the stock/internet bubble?[/quote]
Ok, going back to 1995, the S&P 500 is up 6.8% annualized including dividends (about 2.5%). So, that’s about 4% real return, and 3% real after taxing the dividends. Don’t get me wrong, 3% real after-tax is much better than nothing. But, again, it’s nothing to write home about in absolute or historical terms where the stock market is concerned (and barely worth the risk involved).
[quote=CA renter]
You mention stocks, as if that’s all that the wealthy own. How about bonds, gold, real estate (foreign and domestic — HUGE run-ups in foreign RE this past 10-15 years), foreign currencies, commodities, foreign stocks, etc.? THAT is where much of the wealth belonging to “The Rich” has been going this past 10-15 years. I’m quite sure the return has been a tad over the 1.7% annualized real return you quoted for the stock market.
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Commodities aren’t heavily owned by the Rich (or any one particular group, for that matter, except for farmers and commodity producers), although clearly they have some exposure. But, 90% of the wealth is in cash (where there is no real after-tax return – it’s zero by design), stocks (covered that above), bonds (about 1.5% real after-tax return over the last 15 years), and real estate. We covered residential, so that leaves CRE. The fact is that CRE values are up from 1995, but the annual appreciation is quite low after the recent 40%+ decline. So, the return has been from CASH FLOW… which brings me to my larger point: While the primary assets of the Rich have increased fairly modestly in value over the last 15 years in real terms… it’s the CASH FLOW that increased enormously over that time. Whether as an executive getting paid a lot of money, a financial services professional getting paid a lot of money, or a CRE investor getting cashflow from properties… it’s the CASH generation that’s really made the Rich richer over the last 15 years. Again, I’m not saying that assets haven’t played a role, but it’s been modest in the whole scheme of things – the CASH is what’s played the major role. And that cash flow has grown at a rate much greater than that of Joe Sixpack and what has fueled much of the growing inequality.
Now, in 2006 – prior to the stock and property bubbles bursting – your argument would have been much stronger. But post-correction, it’s the cash that’s played the major culprit. Although if we get another bubble (or bubbles) then you’ll be able to make the charge against asset inflation again. But my suspicion is that stocks and real estate are in for low returns for quite some time.
