I was idly thinking of bubble wealth vs real wealth. I'd define bubble wealth to be perceived wealth based on non-producing assets without an underlying, historical, or productive market value. Bubble wealth is held up by faith alone, can collapse when the faith vanishes, with nobody willing to scoop up bargains after a collapse.
In fact, there's no concept of a 'bargain' for a bubble commodity. Once the faith is gone, the value is gone.
Real wealth examples:
* real estate that people live in, using money from jobs. Or functioning commercial real estate.
* stocks with a historically non-insane PE (say, less than 25 or 30). Yes, there's an exception for genuine likelihood of growth.
* gold at historical prices (gold is faith based, but it's 10,000 years of faith).
* dollars, exchangeable for above, as long as inflation is sane.
* Dutch tulips c. 1635; Beanie Babies c. 1995.
Bubble wealth examples:
* the part of gold price above its historical norm, say $2500 (ie, a bit over plateau before 2024). Gold's current bubble value would be $16T using total amount of gold in existence; but only 22% is in private bullion rather than jewelry or central deposits, so maybe just $3T.
* most of silver's current price, but most of silver is in non-investment form. Silver has a $5T total cap, but only 5% is held as coin or bullion, so ignore silver.
* cryptocurrency. Current bubble value $2.6T, assuming all crypto is hokum.
* the $3T of AI infrastructure build-up could be bubble wealth, in full or in part.
* real estate used to park money, that could not be rented to cover a large fraction of the cost of acquisition. Bubble value: very hard to guess; the total [value of real estate shot up from $30T to $50T after covid,(https://fred.stlouisfed.org/series/HOOREVLMHMV), when CPI says it should have gone to 38T, so there's $12T of bubble value maybe, unless the increase of prices is fundamental.
* stocks like TSLA and maybe PLNTR and NVDA - I'd say TSLA is 90% bubble but hard to say for NVDA. 50%? Anyway, maybe $4T just for these, then a bunch of other stocks, at various bubble fractions.
* one could argue that the difference between a sensible SP500 PE of 20-25 (?) and today's value of 30 is bubble wealth, so at least 20% of the US market ($14T) is bubble wealth, but high stock PEs can be sustained or slowly deflated, and there is a fundamental value floor holding stocks up, with bargain hunters waiting to pile on. So let's not count the high current P/E, or discount its bubbliness by a lot. The fact that investible money is chasing actual bubbles like gold and crypto instead of stocks suggests that the market is bubbly, however.
So there seems to be at least $20T of faith-based wealth out there, perhaps 65% of US GDP.
The stock market lost $8T (equivalent to $12T today) in 2008; it lost $5T ($10T today) in 2000. Housing lost something like $6T in 2008, suggesting that the total 2008 dip in nominal wealth could be on the order of today's bubble wealth.
Comments? Are we in a record era bubble wealth?
Or is this the wrong way to look at things?