What’s the difference between a bull market crash like 1987 or 2000 to 2002 or 2008 to 2009 and a bear-market bubble crash?
After the latter, stocks and most financial assets don’t get back to their previous highs for 24 to 25 years.
If you had bought stocks in late 1929, you would have suffered an 89% crash, at worst, and it would have taken you 24 years – until 1953 – to claw back those losses! And that’s if you hadn’t panicked and sold at or on the way down to the bottom, which most investors do.
If you were invested during the next demographic peak in late 1968, you would have suffered a 70% loss on the Dow (adjusted for inflation) and it would have taken you 25 years – until 1993 – to breakeven again.
You face the same scenario now, only it is more like the 1929 to 1932 final bubble crash. That means you’re staring down the barrel of 80%-plus losses.
The thing is, while a lot of people lose jobs in a bubble crash like 1929 to 1932, it’s the rich who suffer the biggest losses. That’s because…
They typically benefit the most from the bubble and have the most financial assets (outside of the home they own) to lose!
The top 1% are more entrepreneurial and have more volatile businesses and net worth, which is why households fall in and out of that group frequently. The top 5% to 10% of professionals have more steady jobs, incomes and net worth. I call that the ‘sweet spot’, adjusted for risk.
So, the top 1% will see many businesses failures and loss of business wealth during a crash as well…on top of what they’ll lose in the markets.
Since 1983, the top 1% has climbed from 34% of financial asset ownership to 40% (and I’ve seen some studies say that it’s closer to 50%). The bottom 90% have fallen from 32% financial asset ownership to 21%. How much can the latter lose when they don’t have many financial assets to begin with?
For a broader view, look at this chart, which shows the top 10% versus the top 20%.
The top 20% control 90% of the financial assets while the top 10% controls only 79%. That means the bottom 80% control only 10%!
The whole wealth curve is exponentially skewed, much more than income…
So, there are no two ways about it: When this bubble finally bursts for good, and wealth is destroyed for a long time, it will be the richest that lose the most!
And they’re the ones who tend to feel less vulnerable. Stupid rich people.
For, Markets & Money