Well, here we go again: it’s boom time.

If you’re a US resident with a short memory (or a young adult who only recently started making a living for yourself), you might be under the impression that we live in a country with permanently high unemployment, a slow housing market, and mortgage interest rates that never exceed 3.5%. Sure, you’ve seen the stock market double in price since 2008, but other than that there hasn’t been too much prosperity sloshing around.

The thing is, the ground is rising beneath our feet and we’re right in the middle of a great change. I can predict that with relative certainty, because the economic picture is always changing and cycling back and forth. You don’t always see it in advance, but you definitely see it when looking backwards.

In 1982, my parents moved us from an expensive suburban area to a cheap little town, to escape the variable interest rate mortgage that had suddenly exploded to 18% on them. As a boy, I remember buying a savings bond worth $1000, that paid out $120 (12% interest) for the next three years.

In 1987, one of my childhood friends told me his dad lost his job as a stockbroker, in the aftermath of the Black Monday crash. The father joked with us he had been unwise to buy his new Lincoln Town Car. But the stock market roared back from that crash rather quickly.. until the 1993 recession sliced a bunch of things in half, including property values in certain areas.

In 1997, I graduated with a Computer Engineering degree, and the job market was in fair condition. I was fortunate to get a good job lined up upon graduation, but some of my classmates had to search around for a few months and settle for lower salaries. However, by 1999 the headhunters were ringing the phones in every cubicle and I had an easy time upgrading my career, choosing from a bouquet of seven job offers around the US. After less than a year, I switched jobs again in 2000, enjoying a salary bump and watching the market valuation of Cisco Systems exceed $500 billion (even today after 13 years of revenue growth, the company’s value is about 75% lower).

All this was turned on its head in 2001, when the dot com boom ended, stocks collapsed, companies closed, and many of my software developer peers found themselves unemployed. The housing market in my area turned from fire to ice, with appreciation becoming depreciation and higher-end houses languishing on the market for years. The local high-tech scene was expected to forfeit its gains from the late 90s and remain quiet forever.

Until it wasn’t. By 2005, employment was rising rapidly, the stock market was on a tear, and mansions were being built and sold as fast as the custom house builders could complete them.

Until 2008, when the Great Financial Crisis slammed the brakes on everything. House builders went instantly out of business, giant banks collapsed, millions of people stopped making their mortgage payments, and the entire US economy tipped over like a speeding school bus that missed a corner, screeched noisily along the shoulder throwing sparks and smoke, barely coming to rest in a teetering position at the edge of the Grand Canyon. Surely, THIS was the end of prosperity. Capitalism had failed, and we were in for permanent doom…

..Until now, when the stock indices are breaking records, IPOs are in plentiful supply, and house prices in some markets (including Denver metro) are back above their 2007 peaks. I’ve submitted five offers in on rental houses in my own area over the past year, being outbid mostly by people who, I thought, ended up paying too much for the house.

And we’ve had it pretty mild here in the US: Canada, Australia (and I hear Brazil too) have been in a much bigger boom for many years now, with average-income people stretching to mortgage $700,000 homes, just because that seems to be the thing to do these days.

Is there is a lesson in all of this craziness? Why yes, I believe there is. Since we’re getting started on yet another boom, I thought we might as well prepare ourselves for it, in order to get more out of it.

What to Do in a Boom

Jobs: You start hearing about job opportunities. Your friends get enviable new positions. Maybe some are even offered to you. In magazines and newspapers, you read about entrepreneurs who are making far too much money for doing things you could have damn well thought of and done yourself. Damn!

If you’re ambitious, this is your time. Instead of sitting tight, harvest some of those jobs yourself. Maybe fire out some resumes. Or get a raise. Jump into an expanding division of your company, taking on far more seniority than you’re qualified for. Or switch industries completely, to one where they just can’t find enough qualified people. Get a bunch of new skills, while somebody else is paying you do to it. Hang around with some of those entrepreneur-in-a-magazine-type people, and sniff up some of their contagious optimism.

Lifestyle: But then save those windfall earnings. This is not the time to buy the new Accord V6 or the 92″ television, or fight with your coworkers to buy a bigger house in a rising market. An economic boom is the time you maximize earning (because the money supply is high), but minimize spending (because prices are likely high due to competition from other buyers). If you have a big house that you’d like to downsize, this is the time to do it. The most avid housing optimizers might even move to a rental during this time.

Investments: Everyone is speculating vigorously on stocks, and the index is at a high valuation. You’ll want to continue your regular investing program, but your asset allocation rules will automatically make you buy fewer stocks and more bonds. And especially look into alternatives like paying off your mortgage early – this is the time to get out of debt, because the getting is easy.

For those interested in their local real estate scene as I am, this can be a frustrating time, as rental houses may become too expensive to provide appropriate returns (I look for monthly rent equal to 1% of the purchase price as a rule of thumb). But this opens up another opportunity: the fix-and-flip. In expensive markets, prices for the same house can vary by $100,000 or more just based on cosmetic condition. If you know how to create residential beauty out of ugliness on an efficient budget, the boom market is the place to ply this trade.

… And eventually, once everybody gets used to the good times, the next bust will arrive.

What to do in a Bust

Jobs: Now you’re feeling pretty smart about the way you handled the boom. Your friends used it to sign up for car payments and new houses, and yet their jobs are suddenly unstable. You used the proceeds of the boom to pay down debt and invest more, so you are more financially stable than ever. The money may not be flowing so freely, but you are ready for it. Your reduced stress level at work may even help you keep the job while others are let go, or give you the confidence to jump ship if your own company is sinking.

Lifestyle: The best time to buy a house (or move to a bigger house) is in a poor housing market. The pricing scale usually compresses, meaning expensive houses tend to drop more than cheap ones. So the premium to upgrade is lower. Note that this exactly the opposite of what most consumers do: upgrading whenever the “equity” due to appreciation is large enough to cover a down payment on a bigger house that has appreciated even more.

During a down-market upgrade, there should be no pain felt in selling your previous house at a loss: after all, you are buying the new one at a correspondingly bigger discount. But if your old house makes a suitable rental house, you might even keep it, using it to generate income until the next boom comes.

This is also the time to buy a great used car if you need one, take vacations that might normally be overbooked or overpriced, and get anything else done that is normally difficult when everyone is overbooked.

Investments: The best part of any bust is the spectacular stock market crash that goes along with it. Although this borders on the taboo practice of market timing, I feel every big market crash is a time to joyously go out and buy as many more shares of your index funds as you can. Increase the contributions. Drain the cash reserves. Enjoy the lower valuations and higher dividend yields.

And, man oh man, the rental real estate millionaires that were made during the 2008 housing crash, buying up houses at 75% off from the banks, will become legends of generations to come.

So there’s your Contrarian Soup for the day. You may already feel the boom roaring in. The old you would get excited and start clicking through the BMW website looking for a way to celebrate your promotion. But the new you realizes that the booms are not really there to get you more stuff. They are there to help you become wealthy.

If you spend away the wave of wealth that the boom brings, the eventual bust will feel painful. Instead, hang in there. Keep earning and learning, and ride the wave. The next bust is surely less than 10 years away, and this time, you’ll be ready for it.

Further Reading: this Economist article called The Stealth Boom analyzes some of the characteristics of our current boom-in-progress, and explains why we haven’t seen rampant inflation despite the amazing free money that the US Federal reserve system has been temporarily pumping out. The Economist actually suggests even more easing, but I’d personally say we should err on the side of caution and take it easy, given how well things are going already. Time will tell who gets this little wager right.