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.
Post by unlawflcombatnt on Apr 7, 2014 12:17:46 GMT -6
Excellent articles, Jeff.
Our economy is heading for disaster.
The only question is when.
from: The Declaration of Independence: "all Men are...endowed by their Creator with certain unalienable Rights... to secure these Rights, Governments are instituted... whenever any Form of Government becomes destructive of these Ends, it is the Right of the People to alter or abolish it"
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Apr 14, 2021 1:41:25 GMT -6
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May 29, 2014 8:44:44 GMT -6
jeffolie: One might short a bull ETF to gain the decay but this requires a margin position subject to changes imposed by the exchanges & brokers
Oct 26, 2013 13:26:07 GMT -6
jeffolie: Holding a stop loss in these algo dominated markets almost always means the algos will hit your stops
Oct 26, 2013 13:20:09 GMT -6
jeffolie: Even so, these leveraged ETFs do not create margin calls nor expiration dates thus allowing one to hold indefinitely
Oct 26, 2013 13:17:52 GMT -6
jeffolie: Yes, the ETF features fading/leveraged decay because the futures and/or options used decay plus the administrative costs rise the decay, declining value ... I accept this as a cost and feature of all ETFs that purchase futures/options to maintain price
Oct 26, 2013 13:15:38 GMT -6
mimzy: jeffolie ~ I've been reading/lurking you for a year or three now and was wondering if your could you explain how you overcome quantum fading/leveraged decay in your ETF short position of the DJIA?
Oct 25, 2013 20:46:26 GMT -6