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Household Deleveraging Continues As Net Worth Jumps On Stock Market Gains; UBS Sees Stagflation Coming As Real Estate Values Drop To Q4 2003 Levels

Tyler Durden's picture





 

Today the Fed released its quarterly Flow of Funds report which is traditionally used to keep track of household net worth and general leverage. While the far more important use of this data, namely tracking shadow banking data is never in the headlines (we will present an updated version later today), the media is more than happy to present any simplistic information without much thought. To be sure, based on nothing but a jump in the stock market, household net worth increased by $2.1 trillion to $56.8 trillion. This increase was due entirely to a change in the value of Corporate Stocks held by the public ($7.6 trillion to $8.5 trillion), Pension Funds ($12.3 trillion to $13 trillion) and Mutual Funds ($4.4 trillion to $4.7 trillion), for a total change of $2 trillion. What did not go up were tangible assets such as housing, which after reversing its plunge from an all time high of $25 trillion in Q4 2006, and hitting a low of $18.5 trillion in Q1 2009, has now officially double dipped, dropping to $18.2 trillion in Q4 2010: the lowest in over 6 years. In other words, the wealth effect is working, but only as long as the Fed can continue to keep the market high. Other real assets are losing value fast. And while consumers continue to deleverage, and non-financial businesses are just barely adding new debt ($11.1 trillion in Q4 2010, a $100 billion increase Q/Q),  the government, both federal and state and local, continue to binge like a drunken sailor on debt, which combined for the two increased to an all time record of $11.9 trillion. So while USA Today may rejoice at its simplistic interpretation that we are all getting richer even as real assets decline in value, UBS' Andy Lees thinks that the household leverage trends will ultimately result in stagflation.

To wit:

The Fed Z1 flow of funds report for Q4 just released. Total nonfinancial sector debt grew by 5.1% on an annualised basis. For 2010 as a whole debt was up 4.6%. Households did reduce debt so that was positive, but only by 0.6%. Business increased debt by 3.6% - (this could be seen as positive or negative depending on the return on its investments). States and local governments increased their debt by 7.9% whilst Federal debt grew by 14.6%, which I find hard to believe was invested in productive assets. In my opinion these figures are not indicative of the restructuring that is urgently needed and suggest that a continuation of this policy will result in stagflation as resource constraint mean there simply is no more road to kick the can down.

And here are the charts that confirm that the US "recovery" is based on nothing more than ongoing stock market manipulation.

Summary Consumer Balance Sheet:

Change in Household Debt:

Change in Business Debt:

And naturally total government debt:

And the confirmation of the housing double dip, and why stock better continue growing or else everything will come crashing down. The Q4 2010 real estate value of $18.2 trillion is the lowest since Q4 2003!

 

 


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Thu, 03/10/2011 - 16:14 | Link to Comment bob_dabolina
bob_dabolina's picture

Tim Geithner sucks

Thu, 03/10/2011 - 16:35 | Link to Comment william the bastard
william the bastard's picture

How do you know?

Thu, 03/10/2011 - 16:41 | Link to Comment malikai
malikai's picture

Geithner sucks, everybody else gets to swallow it.

Thu, 03/10/2011 - 17:06 | Link to Comment covert
covert's picture

ride the wave to the end of the bubble then shortsell to rip off all the suckers. then hide it all well to escape envy.

http://covert2.wordpress.com

 

Thu, 03/10/2011 - 16:16 | Link to Comment edotabin
edotabin's picture

The property double-dip really looking like a fact while stocks just getting pumped, pumped and pumped! Let's see when that's gonna pop....

Thu, 03/10/2011 - 16:17 | Link to Comment Caviar Emptor
Caviar Emptor's picture

Too bad for Benny Boy the psychology of the "wealth effect" has changed since 2008: consumers are simply not as ready to spend. They need the money to cover infaltion in the cost of living in the real world, not the Fed's fantasy

Thu, 03/10/2011 - 16:30 | Link to Comment TruthInSunshine
TruthInSunshine's picture

We're about to find out how loyal hungry dogs really are.

 

The Bernank's "virtuous circle" tagline (virtuous circle®) is about ready to boomerang and decapitate him, sharp side inward.

 

"Virtuous circle" is destined as a historical slogan that will come to be associated with "epic failure."

Something along the lines of "permanent plateau"......

The Bernank spent 12 trillion in OPM and all he has to show for it is a worsening American and global economy (and a plush little most favored segment of the economy over on Manhattan).

Thu, 03/10/2011 - 16:20 | Link to Comment NOTW777
NOTW777's picture

wheat getting clobbered; dxy continues to hum

Thu, 03/10/2011 - 16:34 | Link to Comment william the bastard
william the bastard's picture

Price of beer gonna be dear.

Thu, 03/10/2011 - 17:34 | Link to Comment CrazyCooter
CrazyCooter's picture

Actually, a 12 pack of cheap-o beer in the cans with paperboard packing is the ideal poor mans inflation index:

  • Poor alcoholics will buy the *cheapest* shit they can find, thus are very price sensative. Margins are usually low and fixed.
  • Aluminum is a core industrial metal
  • Energy to heat/brew
  • Fuel to transport the beer (its not light in weight!)
  • Cost of clean water
  • Cost of paper packaging

I would love to see the wholesalers price of a 12 pack of natural light or keystone or old milwaukees best for the last ten years or so.

Anyway, pick a brand and keep an eye on it in your local store and you too can see the train a'comin!

Cooter

Thu, 03/10/2011 - 16:23 | Link to Comment buzzsaw99
buzzsaw99's picture

joo bankers don't eat pork because that would be cannibalism.

Thu, 03/10/2011 - 16:48 | Link to Comment squexx
squexx's picture

A funny thing I like to do is to take pork products like ham and leave them in the Kosher section at grocery stores. Nothing funny than reminding the Satanic Tribe what they are!

Thu, 03/10/2011 - 16:24 | Link to Comment Judge Judy Scheinlok
Judge Judy Scheinlok's picture

I can't wait till the McMansions are at Q4 1973 Levels!

It will happen, just wait...

Thu, 03/10/2011 - 16:26 | Link to Comment Caviar Emptor
Caviar Emptor's picture

Saudi unrest could tip the apple cart. Poor lemmings!

Thu, 03/10/2011 - 16:26 | Link to Comment Archimedes
Archimedes's picture

I just took off my Dow 12K hat and replaced it with my Dow 11K hat.

Soon to be followed by Dow 10K hat, 9K hat, 8K hat.....

Thu, 03/10/2011 - 16:33 | Link to Comment william the bastard
william the bastard's picture

Can't but the dip until you end the slip.

Thu, 03/10/2011 - 16:26 | Link to Comment jus_lite_reading
jus_lite_reading's picture

Stop bitching! Don't worry! The worlds richest BILLIONAIRES just got a whole lot richer! $1 TRILLION RICHER!

http://fiatsfire.blogspot.com/2011/03/daily-five-five-headlines-you-need...

YEE HAW! Trickle down is working wonders! Thank you BEnron! Keep pumping billions into the stock markets! It's creating JOBS!..

 

 

 

 

not.

Thu, 03/10/2011 - 16:28 | Link to Comment The Axe
The Axe's picture

Fawn Hill, Harding NJ   listed at 22 million sold at auction 6.7 million....wtf...Oh housing is getting much better...

Thu, 03/10/2011 - 16:28 | Link to Comment Seasmoke
Seasmoke's picture

would have went for $21 million, but those NJ property taxes are a BITCH

Thu, 03/10/2011 - 16:54 | Link to Comment kaiserhoff
kaiserhoff's picture

Something in Joisy is worth 6.7 mil?  Must be rumors of buried gold, or the bones of Jimmy Hoffa.  Sure as hell ain't the 'hoes.

Thu, 03/10/2011 - 16:32 | Link to Comment Johnny Lawrence
Johnny Lawrence's picture

Why do we sometimes rip the big banks for their research and then sometimes use their reports to support our previously established opinions (i.e. UBS)?  Fuck them.

I work at UBS.  Their macro research is so bullish it might as well have sugar sprinkled on it.

Thu, 03/10/2011 - 16:29 | Link to Comment Caviar Emptor
Caviar Emptor's picture

Fed could announce a new facility: oil sheik and dictator-backed liquidity facility

Thu, 03/10/2011 - 16:33 | Link to Comment fragrantdingleberry
fragrantdingleberry's picture

We are in a bull market and you suckers are missing it. BTFD.

Thu, 03/10/2011 - 16:33 | Link to Comment NOTW777
NOTW777's picture

day of rage (pick ur location madison or SAUD) will be excuse for QE3;

bill p will announce back in (of course after a 2-3 wk frontrun)

Thu, 03/10/2011 - 16:37 | Link to Comment william the bastard
william the bastard's picture

Al Jazeera has been suffering interference on its Arabsat satellite frequency. During jamming Al Jazeera English can be watched on Hotbird 13E Frequency: 11034 Vertical FEC

Thu, 03/10/2011 - 16:42 | Link to Comment TruthInSunshine
TruthInSunshine's picture

Days of Rage in Camden, Charlotte, Detroit, Sacramento, Memphis, Cleveland, Atlanta, Chicago, Philly, Miami, St. Louis...etc...soon?

The Bernank assaulted by angry throngs losing homes and jobs, shouting "Bitch better have my money!"

???EEE

 

Thu, 03/10/2011 - 16:41 | Link to Comment max2205
max2205's picture

The Fed has all these charts....Who, in the Fed, actually reads them and tells someone to hit the brakes or hit the gas.....silo management

Thu, 03/10/2011 - 16:42 | Link to Comment NOTW777
NOTW777's picture

great news - only rubber bullets used how nice

Thu, 03/10/2011 - 16:43 | Link to Comment NOTW777
NOTW777's picture

euro looking waterfallish

Thu, 03/10/2011 - 16:45 | Link to Comment stormsailor
stormsailor's picture

WASHINGTON, D.C. -- A months-long investigation into abusive mortgage practices by the Federal Reserve found no wrongful foreclosures, members of the Fed's Consumer Advisory Council said Thursday.

Thu, 03/10/2011 - 16:52 | Link to Comment Yen Cross
Yen Cross's picture

test

Thu, 03/10/2011 - 18:23 | Link to Comment TeresaE
TeresaE's picture

BTFD.  DMMFL (don't make me fucking laugh).

I knew a CPA turned recruiter in the late 90s.

He believed in the dotcom bubble like no tomorrow.

Of course, the fact he was making a cool half-mil a year selling employees to companies was flavorning his world.

One drunk night at a company party, we were talking about the economy, China, etc.

He said, BTFD.

I said, "Ryan, come the fuck on.  You know this gravy job is going bye-bye after Y2K right? You know that paying high dollars for low/no performing companies isn't investing, it's speculation, really gambling, don't you?"

 

"No way, the world has changed, things are different now."

He ignored the fact that the following year millions of highly trained and educated would be out of their high-paying jobs, and that our federal taxes were scheduled to go up. And he firmly believed that these things wouldn't hurt our economy because "it was different this time."

Oops.  He went from net worth of nearly $10 million, to net worth of less than $500,000.  And his income quartered.

Flash forward eight years to the housing crash, lather, rinse, repeat. I heard through the grapevine that he lost his ass in housing too.

There is not much real wealth production left anymore.  Tech was a bubble and after it popped the industry offshored the repeat work.  Housing bubble and it ain't coming back.

In my mind, BTFD = KYFMG (kiss your fucking money goodbye).

Best of luck to the Rosy-Optimist's Club.

Thu, 03/10/2011 - 19:31 | Link to Comment TruthInSunshine
TruthInSunshine's picture

You're spot on, TE.

Thu, 03/10/2011 - 19:36 | Link to Comment ebworthen
ebworthen's picture

TeresaE,

Good to see you, and I agree completely.

Thu, 03/10/2011 - 19:43 | Link to Comment Don Birnam
Don Birnam's picture

"Things are different now."

Belief in this fallacy has been the ruin of many, back to the days even before the Semper Augustus tulip bulb was the investment du jour. Your last couple of paragraphs nailed it, Teresa. Frankly, nothing is coming back, for a very, very long time.

Thu, 03/10/2011 - 19:31 | Link to Comment tom
tom's picture

Remember that "household net worth" as the Fed defines it includes domestic hedge funds, which account for the lion's share of reported "household" capital gains on equities.

Thu, 03/10/2011 - 19:32 | Link to Comment ebworthen
ebworthen's picture

 

Compare DOW/GLD

Almost a direct inverse trade daily since Feb. 18th.

 

Fri, 03/11/2011 - 00:52 | Link to Comment arun 1
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