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Very interesting. Would love to get your take on what happens when: (i) the value of (highly leverageable and, therefore levered) real assets have skyrocketed thanks to rates being pinned down to 0, (ii) inflation starts picking up, (iii) the age pyramid starts flattening out, thereby eroding net asset owners' ability to maintain their privilege (fiscal / political), (iv) for social stability reasons, stimulus money (while it can still last) keeps shifting towards consumers (vs. asset owners until now), taking inflation even higher, and (v) more speculatively, things like death tax start being strengthened?

When just the though of slightly rising rates lead to serious corrections of those assets' value, would your point apply to structurally less levered real assets only? (which there are very few now, obviously)

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Your questions are very interesting and right on the nose for this topic. They are complicated though and I am not sure I have good answers to them all. It's true that many real assets are highly leveraged although the leveraging of financial assets (margin loans) has increased much faster that that of real assets (mainly mortgage loans) since at least 2008. Home prices have skyrocketed since arrived COVID but mainly higher-priced homes; prices of less expensive homes have actually fallen over the past year. I do think you are right about political pressures to shift wealth from current asset owners to paycheck earners. That's not going away. We have already seen the proposed capital gains tax hikes. Corporate income tax rates, top personal marginal rates, and estate tax hikes are sure to follow. Together, those policies should put downward pressure on all asset prices, somewhat tweaking the upward pressure from the Fed.

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Thanks for an (unsurprisingly) very thoughtful answer.

Certainly true that the "leverage gap" has been narrowing (although, I would suspect, it remains wide enough).

Additionally, the now higher share of growth-oriented non real assets certainly makes non real assets as a whole more sensitive to rates/inflation picking up, thereby reinforcing your point.

New - - and somehow a beacon of investing hope - - to me is your mention of less expensive homes' prices having dropped.

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I may have just extinguished that beacon of hope, Luigi. Looked at a chart I found showing #s of homes sold by price (homes over $1M +81%, homes under $100K -26%) but it measures numbers of homes, not prices themselves. Whoops. Will post a note on the site. John

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Ah ! Thanks, Sig. Rutledge ;) That was my fear indeed. So, just more craziness on the general public accessible side of the real asset class.

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Great summary - look forward to your next post!

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