Best of the Week
Most Popular
1.The Greatest Stock Market Crash Of Your Life Is Just Ahead… – Warns Harry Dent - GoldCore
2.Budget 2016: Borrowing, Lifetime ISA, House Prices, Economy, Syria, Brexit and Stocks - Nadeem_Walayat
3.Gold Price Intermediate Top - Clive_Maund
4.Brussels Terror Attacks, Death of the European Union, BrExit Wake up Call - Nadeem_Walayat
5.Stock Market Maybe This Time is Different? - Tony_Caldaro
6.UK House Asking Prices Break Above £300k! Housing Market Paralysis - Nadeem_Walayat
7.A Big Reason Why Silver Price Is Set To Soar - Hubert_Moolman
8.The Financial Crisis Has Just Begun; Is The American Dream Is Over? - Chris_Vermeulen
9.Gold Stocks Spring Rally - Zeal_LLC
10.GLX, GLDX, Baby Gold Bull Market Stillborn? - Rambus_Chartology
Last 7 days
Markets At Crossroads: Huge Moves Brewing In Stocks And Gold - 6th May 16
The Bitcoin Drama Continues: Craig Wright Disappears and Andresen Says He Was Bamboozled - 6th May 16
When Gold Confiscation Is a Personal Choice - 6th May 16
Stock Market Getting Ready for the Next Flash Crash - 6th May 16
arclays 100% Mortgage Pours Fuel on UK House Prices Bull Market - 5th May 16
Central Planners Versus Contrarian Logic - 5th May 16
Euro Desperation will achieve Self Destruction - MAP Wave Analysis - 5th May 16
Stocks Extended Their Short-Term Downtrend But Will They Continue Lower? - 5th May 16
Monetary Liquifaction, Gold And The Time Of The Vulture - 5th May 16
US 2016 Election Is a Global Risk - 5th May 16
A Few Facts About Gold That Nay-Sayers Conveniently Ignore - 5th May 16
Save the Environment and Your Retirement: Sell Tesla - 4th May 16
Silver Bullion Has Key New Player – China Replaces JP Morgan - 4th May 16
Gold Stock Picks Up Over 400%, What's Next ? - 4th May 16
U.S. Treasury Secretary Jack Lew: Puerto Rico Needs Urgent Action - 4th May 16
Technical Trading Mastery for Traders & Investors - 4th May 16
Derivatives Crisis Of Banks…Worldwide - 3rd May 16
Bank of North Dakota Soars Despite Oil Bust: A Blueprint for California? - 3rd May 16
Stock Market Technical Analysis - 3rd May 16
Central Banks Need a Higher Gold Price : Hello GATA - 3rd May 16
A Currency War Battle That Europe and Japan Can’t Afford To Lose - 3rd May 16
When the Truth is Found to be Lies, Confidence in Currency Dies - 2nd May 16
How Brexit Could Help All of Europe - 2nd May 16
US House Prices Outpacing Official Inflation Rate, Household Income - 2nd May 16
USD Still Declining... - 2nd May 16
Gold & Silver Rally Huge as Central Bankers & Analysts Flub - 2nd May 16
Stock Market Bounce Day - 2nd May 16
Stock Market Uncertainty Following Two-Month Long Rally - Will It Continue? - 2nd May 16
Stock Market Correction Underway "Upside Objective Reached" - 2nd May 16
USD, Yen and an ‘Inflation Trade’ Update - 2nd May 16
Gold Commitments of Traders and More - 1st May 16
The Magic of Gold Ratio Charts - 1st May 16
Consensus Forming: China Heading Back Into Financial Crisis - 30th Apr 16
The Next Technical Price Targets for Gold & Silver - 30th Apr 16
Stock Market Downtrend Should be Underway - 30th Apr 16
Gold And Silver – A Clarion Alarm Call For All Paper Assets - 30th Apr 16
US Economic Statistics LIES, LIES AND OMG, MORE LIES - 30th Apr 16
Stock Market Strong Elliott Wave Relationship is Developing - 29th Apr 16
Fed's Kaplan: Brexit to Factor in US June Interest Rate Decision - 29th Apr 16
Silver Miners Strong in Grim Q4 - 29th Apr 16
Is Silver a better bet than Gold in the Near Future? - 29th Apr 16
How to Use the CoT Report in Gold Investing? - 29th Apr 16
Sri Lanka is Intriguing: Areas to Consider for Value Investing - 29th Apr 16
Gold “Chart of The Decade” – Maths Suggest $10,000 Per Ounce Says Rickards - 29th Apr 16
Are We or Are We Not in a New Gold Bull Market? - 29th Apr 16
Silver: The “Five Year Plan” and the Great Leap Forward - 28th Apr 16
Michael Hudson: The Wall Street Economy Has Taken Over The Economy and Is Draining It! - 28th Apr 16
AUD/USD - Trend Reversal or Just a Bigger Pullback? - 28th Apr 16
A Gold Revaluation Could Transform Your Financial Status - Overnight - 28th Apr 16
Monetary Policies Misunderstood - 28th Apr 16
Gold Bullion vs Gold Miners - 28th Apr 16
OECD Suggests BrExit Would Cut Net Migration by 1.2 Million by 2030 - 28th Apr 16
MP Naz Shah Punished for Tweets Made During Israel's Genocide of Gaza Palestinian People - 28th Apr 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Catching a Falling Financial Knife

U.S. Household Net Worth: The ”Real” Story

Economics / US Economy Dec 07, 2012 - 04:42 AM GMT

By: PhilStockWorld

Economics

Courtesy of Doug Short writes: A quick glance at the complete household net worth data series in a linear chart shows a distinct bubble in net worth that peaked in Q4 2007 with a trough in Q1 2009, the quarter the equity markets bottomed. The latest Fed balance sheet shows a total net worth that is 26.4% above the 2009 trough but still 3.8% below the 2007 peak. The nominal Q3 net worth is up 2.7% from Q2 and up 10.4% year over year.



But there are problems with this analysis. Over the six decades of this data series, total net worth has grown over 5000%. A linear vertical scale on the chart above is misleading because it fails to provide an accurate visual illustration of growth over time. It also gives an exaggerated dimension to the bubble that began in 2002.

But there is another more serious problem, one that has to do with the data itself rather than the method of display. Over the same time frame that net worth grew by 5000-plus percent, the value of the 1951 dollar shrank to about a dime. The Federal Reserve gives us the nominal value of total net worth, which is significantly skewed by money illusion. Here is my own log scale chart adjusted for inflation using the Consumer Price Index.

Here is the same chart with an exponential regression through the data. The regression helps us see the twin wealth bubbles peaking in Q1 2000 and Q1 2006, the Tech and Real Estate bubbles. The trough in real household net worth was in Q1 2009. From that quarter to the latest data point, net worth has been trending at about the same growth rate as the overall regression, but we are currently 12.7% below the regression.

Let’s now zoom in for a closer look at the period since 2000. I’ve added some callouts to highlight where we are currently with regard to the all-time peak and 2009 trough.

Let’s now compare the nominal and real statistics for the peak-to-trough and recovery-to-date.

■Peak: The nominal peak occurred in Q3 2007; the real peak occurred in Q1 2007. The Q3 2012 nominal net worth is 3.8% below peak. The real net worth is 14.0% below peak.

■Trough: The nominal and real troughs occurred in Q1 2009, the same quarter in which the market bottomed. The nominal peak-to-trough decline was 23.9%. The real decline was 26.1%.
■Recovery to date: The latest Flow of Funds report shows a nominal recovery of 26.4% off the trough. The real recovery is 16.4%.
■Quarter-over-quarter: Nominal total net worth in Q3 increased 2.7% from Q1. The real increase was 2.5%.
■Year-over-Year: Nominal total net worth in Q3 rose 10.4% from Q3 2011. The real increase was 8.6%.
We’ll take another look at the nominal and real numbers after the release of the Q4 2012 Flow of Funds data in March.

--------------------------------------------------------------------------------

Note: I’ve referred to this data series as “household” net worth. But, as I show in the chart titles, it also includes the net worth of nonprofit organizations. The ratio of two isn’t clearly defined in the Fed data, and it obviously varies by asset and liability component. I’ve seen estimates that the nonprofit component is around six percent of the total net worth.

One easy (and rather illuminating) point of comparison in the Flow of Funds data is the relative share of real estate at market value (B.100 lines 3, 4, and 5). In the latest report, nonprofit organizations account for 6.1% of combined household and nonprofit real estate (unchanged from last quarter). That percentage in the quarterly data has ranged from a high of 9.2% in 1974 to a low of 4.0% in Q4 2004, a few of quarters before the peak in the residential real estate bubble.

- Phil

Click here for a free trial to Stock World Weekly.

www.philstockworld.com

Philip R. Davis is a founder of Phil's Stock World (www.philstockworld.com), a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders. Mr. Davis is a serial entrepreneur, having founded software company Accu-Title, a real estate title insurance software solution, and is also the President of the Delphi Consulting Corp., an M&A consulting firm that helps large and small companies obtain funding and close deals. He was also the founder of Accu-Search, a property data corporation that was sold to DataTrace in 2004 and Personality Plus, a precursor to eHarmony.com. Phil was a former editor of a UMass/Amherst humor magazine and it shows in his writing -- which is filled with colorful commentary along with very specific ideas on stock option purchases (Phil rarely holds actual stocks). Visit: Phil's Stock World (www.philstockworld.com)

© 2012 Copyright  PhilStockWorld - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

PhilStockWorld Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife