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What is a Wealth Cycle

Guest post by: Shane Tallentire

Article Overview: A wealth cycle is simply shifting one investment from one sector that is over valued to another investment from another sector that is undervalued. Then you wait for that undervalued investment to become overvalued and then go through the cycle again. The Dot.com bubble of the 90's is a prime illustration of this. What the majority don't know is, this boom started way back in the early 80's at the same time when the Gold and Silver bubble was bursting. At this time most of the money was shifted out of Gold and Silver and put into emerging tech stocks and internet start ups.

What is a Wealth Cycle

A wealth cycle is simply shifting one investment from one sector that is over valued to another investment from another sector that is undervalued. Then you wait for that undervalued investment to become overvalued and then go through the cycle again.

The Dot.com bubble of the 90's is a prime illustration of this. What the majority don't know is, this boom started way back in the early 80's at the same time when the Gold and Silver bubble was bursting. At this time most of the money was shifted out of Gold and Silver and put into emerging tech stocks and internet start ups.

The price of Gold had gone from $850 in 1980 to $255 by 2001. What ended up happening with all this wealth going from Gold into tech stocks created the biggest investment bubble in history by 2000 at that time.

By 2001 the Dot.com cycle had reached a climax and all this wealth started pouring out all these stocks and into physical assets and real-estate.

Trillions of dollars were poured into the U.S housing market which in turned created the biggest housing boom in history. The cost of an average family home went from $169,000 in 2000, to $247,900 in 2007, then the bubble burst, and now all that wealth is flooding out of the real estate sector and into the next market which is Gold and Silver.

If you know how these cycles work, you know to sell the asset when it has reached its peak and then buy the next asset when its at its low.

Sadly though the people who don't understand these cycles do the exact opposite. They will get into an investment when it is near its peak, then end up freaking out selling at a loss and not understanding the cycle was already over, while the intelligent investor is shifting there investment into the next asset class.

Having the knowledge to understand these cycles has to be the first step to take before getting into any long term investment.

To really understand what makes the current wealth cycle (Precious Metals)the Mother of all cycles, we have to look back at what happened during the housing boom. An extraordinary amount of people in the U.S were given loans by the banks that just shouldn't have been given one. The banks then wrapped up all these loans that were defaulted on into derivatives and sold again. Money poured into the worlds economy unlike anything seen before, places like Dubai were built from no where in less than 10 years.

People were spending massive amounts of money on fancy cars, boats, vacations and investments in the markets and purchasing them by using there homes as collateral.

While we know the housing bubble was the biggest on record, the problem with all this borrowing and spending was this housing bubble was getting blown up by these derivatives from the bad loans, so in other words the bubble was been inflated by toxic IOU's where there wasn't a hope n hell that they would be payed back. Unlike the tech bubble that was fuelled by real money.

Then it all started to go down hill when on August 6 2007 the American Home Mortgage Company went bankrupt putting a pin prick into the housing bubble. Up to now these wealth cycles had been manage by real money that flowed from over-valued assets, to undervalued assets.

The down fall of the American Home Mortgage Company was a strong indicator that the worlds economy could no longer sustain anymore of this debt that had powered the growth that we saw in the U.S, in Dubai, in Singapore, in Malaysia, China, and so many other countries who went through housing booms. This was the day the bubble started to deflate, caused by all this debt which was packaged into derivatives and sold again and again and again. This was an event that was felt globally.

Whenever a credit bubble bursts its a deflationary event, for example the great depression was extremely deflationary.

Whenever a property goes into foreclosure, when someone can't pay back a loan or if someone goes bankrupt, all that money vanishes into thin air just like where it came from. Whenever a loan or credit can't be payed back the money supply tightens up and deflation sets in.

This is what happened in the Great Depression in the 1930's.

And its happening all over again, with the bubble in the housing boom bursting there are estimation out there that over the last 2 and a bit years 60 Trillion worth of credit has been pulled out of the worlds economy because of deflation.

This was 60 Trillion dollars that was producing major growth globally and then with just a flick of a switch it vanished. All this wealth really was just an-optical illusion, and the worlds economy has been coming to a gradual slow down as all this debt unravels it's way through the system via deflation. In any other circumstance other than this present time this would be incredibly agonizing, but a necessity to resolve this problem naturally. The people and the businesses that made the wrong choices and who were careless with there credit amounts would suffer and have to pay the consequences as would be warranted. The smart ones would recover and rebuild and the process would exile the the ones who made poor decisions.

The difference in what is happening today is the governments and the financial reserve banks of the world who are trying to do everything in there power to stop this natural process from happening. And because of these measures they have pre-determined which investment type will be the next wealth cycle..... Precious Metals.

Sadly, if we look back in history there are tale tale signs that because of this change over of asset class is so big, it will take down the entire fiat currency system in the process.

But this is not all doom and gloom, you can potentially become very wealthy if you just position yourself on the right side of this transfer of wealth cycles.

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Article Tags: assets, bankrupt, banks, currency, debt, deflation, economy, federal reserve, finance, investments, wealth cycles



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