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Bear Market Rally Working: Consumer Wealth Up 5% To $53.4 Trillion, Courtesy Of $2.3 Trillion In Market "Gains" As Deleveraging Continues

Tyler Durden's picture





 

According to the latest Flow of Funds report, household net worth increased by $2.7 trillion, of which 85% was the result of an increase in "Equity Shares at Market Value." With the mortgage piggy bank shut down for years, the only capital appreciation recourse for Americans has become the uber-manipulated stock market. Zero Hedge expects another TV appearance by Obama within 24 hours, in which, to great pomp and circumstance, he will announce this increase without highlighting what the actual reason (Liberty 33, wink, wink; vertical yield curve) for the increase is. In other not so shocking news, consumer deleveraging continues with $113 billion in debt wiped out from both mortgage and consumer credit in Q3. Who took its place? Why the US government, which borrowed more than enough: Federal government debt outstanding increased by 20.6%! Welcome Central Planning - we eagerly await Obama's announcement of the first five year plan in one of the 10 or so daily TV spots he has reserved until Christmas.

Summary from Z.1:

Debt of the domestic nonfinancial sectors is estimated to have expanded at a seasonally adjusted annual rate of 2¾ percent in the third quarter of 2009, about 1¾ percentage points slower than in the previous quarter. Private debt contracted in the third quarter, while government debt expanded.

Household debt contracted at an annual rate of 2½ percent in the third quarter, its fifth consecutive quarter of decline and the largest decrease on record. Home mortgage debt fell at an annual rate of 3½ percent, a significantly steeper decline than in the second quarter, while consumer credit contracted at an annual rate of 3¼ percent. Other components of household debt expanded in the third quarter, partially offsetting the decline in mortgages and consumer credit.

Nonfinancial business debt contracted at an annual rate of 2½ percent in the third quarter; the decline was widespread across credit market instruments.

Government debt continued to grow in the third quarter. State and local government debt expanded at an annual rate of 5 percent, 1½ percentage points faster than in the second quarter. Federal government debt increased at an annual rate of almost 21 percent in the third quarter, somewhat slower than in the second quarter, but nonetheless the fifth consecutive quarter of growth exceeding 20 percent.

At the end of the third quarter of 2009, the level of domestic nonfinancial debt outstanding was $34.6 trillion; household debt was $13.6 trillion, nonfinancial business debt was $11.1 trillion, and total government debt was $9.9 trillion.

Household net worth—the difference between the value of assets and liabilities—was an estimated $53.4 trillion at the end of the third quarter, up $2.7 trillion (5 percent) from the second quarter and the second consecutive quarter of growth.

Total Household Assets and Net Worth with equity contribution broken out:

Total Household Debt:

 


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Thu, 12/10/2009 - 13:50 | Link to Comment MsCreant
MsCreant's picture

So I don't live in a capitalist system, nor a communist one. I live in a fascist system. Hmmm. Is there like a handbook or something for this so that I can give up my expectations and understand what to expect from here on in?

Thu, 12/10/2009 - 14:06 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

 MsCreant just wait a little longer for President Obamas new Book entitled 'My Story'

Thu, 12/10/2009 - 14:10 | Link to Comment Bam_Man
Bam_Man's picture

I think you meant to say "My Struggle".

Thu, 12/10/2009 - 14:20 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

I am sure the PR men behind Obamas image are a bit more sophisticated then your average Austrian dwarf and besides you have to tailor your image to your audience.

Thu, 12/10/2009 - 14:24 | Link to Comment Bam_Man
Bam_Man's picture

Herr Goebbels was a German dwarf.

Thu, 12/10/2009 - 14:38 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

I stand corrected o Tall one

Thu, 12/10/2009 - 14:36 | Link to Comment Anonymous
Thu, 12/10/2009 - 14:49 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

Mr Anonymous I would recommend that you lighten up just a tad and take a chill pill.

Thu, 12/10/2009 - 14:53 | Link to Comment Anonymous
Thu, 12/10/2009 - 14:07 | Link to Comment Shameful
Shameful's picture

It's pretty simple.

1.  Say nothing bad about the Dear Leader, he is the wellspring from which we flow.

2.  Never question the Dear Leader.  His wisdom is far beyonf mortals.

3.  When in the appointed hour rise with the others and sing praises to the Dear Leader.

4.  Be willing to die for the Dear Leader, for he is willing to live for you.

5.  There is no property that is not the Dear Leader's property.

6.  Do not steal from the Dear Leader.  You steal from us all.

I'm sure there are a few others, but if you stick to those you should be able to stay out of the re-education camps for a while.

Thu, 12/10/2009 - 14:22 | Link to Comment Kurtieboy
Kurtieboy's picture

Classic

Thu, 12/10/2009 - 15:04 | Link to Comment carbonmutant
carbonmutant's picture

Is this because he's a Democrat?

'Cause these rules didn't apply to the last guy...

Thu, 12/10/2009 - 15:40 | Link to Comment Anonymous
Thu, 12/10/2009 - 16:06 | Link to Comment Shameful
Shameful's picture

Well this guys is a bit more stylish then the last one, and has doubled down on government expansion.  I fully expect when the Red team takes the hand off from the Blue team we will have the same rules and more government expansion.

"Meet the new boss!  Same as the old boss!"

Thu, 12/10/2009 - 14:09 | Link to Comment Bam_Man
Bam_Man's picture

'Is there like a handbook or something for this?'

Try reading "Mein Kampf" and you'll get an idea of what to expect from here on in.

Thu, 12/10/2009 - 14:27 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Hitler and Goebbels could only dream of the propaganda and mind control tools the powers-that-be have at their disposal 60 years later. Hitler and friends were rank amateurs compared to the magicians operating behind the modern TV screen.

Thu, 12/10/2009 - 14:49 | Link to Comment Anonymous
Thu, 12/10/2009 - 15:03 | Link to Comment Orly
Orly's picture

And even Ford was a mere rookie when you consider Prescott Bush and Averill Harriman.  Now, those guys knew how to play both sides of a war!

Thu, 12/10/2009 - 18:49 | Link to Comment faustian bargain
faustian bargain's picture

So, what are you saying? The US is not fascist? The Third Reich wasn't fascist?

The 'original' source of the fascism is academic to the matter at hand. If you've got an axe to grind with power elites in US history, well take a number. I think we're all in line here.

Fri, 12/11/2009 - 00:36 | Link to Comment Anonymous
Thu, 12/10/2009 - 14:05 | Link to Comment Anonymous
Thu, 12/10/2009 - 14:06 | Link to Comment Anonymous
Thu, 12/10/2009 - 14:10 | Link to Comment Anonymous
Thu, 12/10/2009 - 14:10 | Link to Comment Anonymous
Thu, 12/10/2009 - 14:17 | Link to Comment Bam_Man
Bam_Man's picture

Umm, we'll worry about that later.

Right now, we'd just like to enjoy the feeling of "being rich again".

Ahh, wealth creation through asset appreciation. Ain't it wonderful?

Thu, 12/10/2009 - 14:18 | Link to Comment AnonymousMonetarist
AnonymousMonetarist's picture

'I know enough not to judge a man by the size of his wallet.' -Mr. Fox

Thu, 12/10/2009 - 14:42 | Link to Comment Anonymous
Thu, 12/10/2009 - 15:14 | Link to Comment Bam_Man
Bam_Man's picture

Don't assume that the recent increases have been "evenly spread around". They most certainly haven't.

Income and wealth concentration in the US gulag have become even more highly skewed in the past year.

Fri, 12/11/2009 - 00:38 | Link to Comment Anonymous
Thu, 12/10/2009 - 15:07 | Link to Comment Anonymous
Thu, 12/10/2009 - 15:42 | Link to Comment Convection Fry List
Convection Fry List's picture

Catch Cramer on CNBS minutes ago mentioning there is "morality issues" with walking away from your house?

Funny thing, his "walk away" video from 2007 appears to be gone from his website:

http://www.thestreet.com/video/cramermarketupdates/10371063.html

Watch what happens when you click that url?

Oh well, it lives on here:

http://video.google.com/videoplay?docid=6978062039224367008

Thu, 12/10/2009 - 16:19 | Link to Comment Anonymous
Fri, 12/11/2009 - 01:30 | Link to Comment JR
JR's picture

Taking the government’s statistical word for anything is a tricky business. The truth is, according to CNN Money, that "the top 10% own approximately 90% of those stock and mutual fund holdings" which gives an idea of just whose households' net worth it was that increased 85% as "the result of an increase in 'Equity Shares at Market Value.'"

http://money.cnn.com/2009/06/11/news/economy/Americans_wealth_drops/

In that a lot of equity share value is in 401(k)s, an article by James Quinn, “Living in Beverly Hills,” on Sept. 9, 2009, indicates how little influence stock market ups and downs have on the average American. According to Quinn,“The median 401(k) balance in the U.S. is $26,000.  Boomers realize they are 60 years old and have $50,000 of retirement savings and $30,000 of credit card debt.”

Quinn also said, at the time, that home owner’s equity (which is the greatest source of wealth for Americans) had plunged from 70% in 1980 to 45%.  And added, "the Federal Reserve created spiral in prices upward has trapped millions of latecomers in houses that are worth 20% to 30% less than the mortgage debt that is strangling them.  Over 16 million home occupiers (not homeowners) are underwater in their mortgage.”

G. William Domhoff in September 2005 points out in Wealth, Income, and Power (updated May 2009):

“In terms of types of financial wealth, the top one percent of households have 36.7% of all privately held stock, 63.8% of financial securities, and 61.9% of business equity. The top 10% have 85% to 90% of stock, bonds, trust funds, and business equity, and over 75% of non-home real estate. Since financial wealth is what counts as far as the control of income-producing assets, we can say that just 10% of the people own the United States of America.”

http://sociology.ucsc.edu/whorulesamerica/power/wealth.html

The wealth effect of rapidly appreciating or depreciating home values has much more affect on American consumers than the stock market. 

A 2001 release by the Consumer Federation of America showed that the greatest source of wealth for all affluent households (net assets of $100,000 or more at the time) was the value of their homes; 34 percent of the wealth of these families was represented in the equity of their primary residence.   By comparison, only 17 percent was in retirement accounts and only 11 percent in stocks, bonds, and mutual funds (not part of retirement accounts)

“For households with net assets of $100,000 to $250,000, home equity is an especially important source of wealth.  The value of their homes represents 43 percent of their wealth (compared to 17 percent in retirement accounts and 6 percent in stocks, bonds, and mutual funds)."

Retirement in America has come to be a very uneven playing field.  Many private sector employees retire solely on Social Security and meager 401(k) savings as a decreasing number receive company pensions, while many public sector employees retire on 75% to 100% of full salary based on their highest earning years after 25 to 30 years’ employment – with full family health insurance and pre-set yearly increases.

According to the Bureau of Labor Statistics, the total annual earnings, based on median weekly earnings of full-time wage and salary workers by union affiliation, occupation, and industry for 2008, is as follows: Private Sector… $36,088: Public Sector… $43,784  (Federal = $50,544; State = $42,224; and Local = $42,328).

http://www.bls.gov/news.release/union2.t04.htm

Here is a site that allows you to compare your 401(k) with those of others your age range, albeit the figures are from the end of 2006:

“401(k)'s for the Ages: Seeing Where You Stand”

Posted 8/10/07 on USNEWs.com.

The numbers come from an analysis of some 20 million participants in nearly 54,000 employer-sponsored 401(k) plans done by the Employee Benefit Research Institute and the Investment Company Institute, as of the end of 2006.

A profile of accounts held by 401(k) participants in their 60s (account balances for those in their 50s are slightly higher) shows for a salary range from $60,000 -$80,000 the median account balance is $160,051. (NOTE: the median balances in this analysis are much higher than in many other studies.)

http://www.usnews.com/usnews/biztech/articles/070810/10roth401k.age_print.htm

 

 

Thu, 12/10/2009 - 16:55 | Link to Comment Anonymous
Thu, 12/10/2009 - 16:58 | Link to Comment Mark Beck
Mark Beck's picture

I love; Personal Net Worth. It sounds so soothing. Like a big pile of money, or if you prefer, gold.

For the most part, it is just Personal Assets - Liabilities.

But, upon closer inspection we realize that pricing assets is not easy unless they are liquid, that is cash. Because beyond cash, the reported or estimated asset price, is an opportunity value in exchange for cash, not a guarantee.

We like to use the word cash equivalents in accounting, but assets beyond cash are not liquid unless you find a buyer. That is, a way to convert back into currency.

Flow of funds increase in personal net worth, with relation to equities (shares), is a misnomer. Because asset conversion would quickly erode price discovery for over-valued shares.

----------

This brings me to another investment truism.

Every investment made with the intent of making profit has a time line. An entry point, and exit point, and actions along the way. Usually to mitigate loss or buy into trends. 

So the process is; cash is invested, converted to a hard asset, shares or gold or something, and once your gain is realized, or your time line ends, or you experience an exit point, you convert back into cash. You see the process of, "profit making" must at some point produce a liquid gain so that profit (real worth) can be protected, by a final conversion into wealth maintenance, or as some call it wealth management. I like wealth maintenance because it is more specific.

The wealth maintenance approach depends greatly on the amount of cash available, and the over-riding reason to convert; Long term, hedge against deflation or inflation, or some crisis. An inflation Hedge for someone like Warren Buffet is to buy a rail-road, and when commercial real-estate bottoms, he may buy Boardwalk or perhaps Park Place.

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I do not necessarily believe in timing the free market, which is what we do not have now, but I find, at this point, I do not like the concept of asset allocation or buy and hold. The reasons are simple enough. Asset allocation is unnecessary in protecting against loss.

In my opinion, asset allocation does a lot of investors a dis-service and lines the pockets of fund managers who tell you to ride your losses down to the bottom of what ever trend there is. Well, this is ridiculous, I myself exit when a lose percentage is reached. It depends on the circumstances, but preservation of capital is the highest priority for any investor. Not a pie chart. Also, I would like to point out that using an ETF or fund to hedge against volatility, has a cost. Protection against volatility erodes profit. So it is not for free.

--------- 

Buy and hold, 25 years ago might have made sense to John Bogle, but in our new era of USD and global volatility, I would not be surprised if John has been moving personal investments out of the US. Call it global divestiture. John if you are out there please chime in. Thanks.

Buy and hold at this time, does not match well with my concept of investment time lines and strategies.

For wealth management I can see a fundamental shift to conversion to real worth. However, to me this will never be a mutual fund, or any fund for that matter. Because this type of conversion is very specific. It is a self sustaining legacy, each specific asset purchased has a function.

Mark Beck

Thu, 12/10/2009 - 18:51 | Link to Comment Anonymous
Fri, 12/11/2009 - 09:15 | Link to Comment Thurgy
Thurgy's picture

Please total up the banking sector profits... Let's divide that by the percentage of their population and get a per person gain.  Illustrate this versus the rest of the US 5% increase.  We already know the lower-class saw near 0% gain...  If you take home prices into consideration I wouldn't be surprised to find negative networth for people over the same time period.

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