Post by jeffolie on Apr 6, 2014 5:51:20 GMT -6
When we consider that Household Net worth is rising primarily due to housing price increases and financial market performance, it becomes apparent that real disposable income will at some point no longer be able to sustain nor afford elevated asset price levels. History has show us that this is a pattern to be most concerned about.
Richard Duncan demonstrates this trigger point (below) by comparing Household Net Worth as a percentage of Disposable Personal Income. The average from 1952 to today has been 525%. With a high during the 2000 Dotcom bubble of 615% and a Housing Bubble high in 2007 of 660%, we now find ourselves at 639%.
According to global macro strategist Richard Duncan at Market Watch, this is actually a major concern! Why? Because though the Federal Reserve has engineered a "required" Wealth Effect recover since the dotcom bubble implosion, the Household sector net worth is moving up geometrically, while US Disposable Personal Income is only marginally rising on a linear basis.
Mathematically, something has to give because they are connected.
When we additionally consider the degree to which margin is presently being used (once again) in the equity markets, we see not only the excess, but that investors have never been poorer while falsely believing themselves to be rich!
How long can this be sustained? Not that much longer because new credit is steadily generating less GDP growth from which to support an ever increasing debt burden.
www.gordontlong.com/Articles/art-2014-04-B-Macro_Insights-The_Unsustainable_Distortion.htm
