Is America In A Bubble (And Can It Ever Return To "Normal")?

Tyler Durden's picture

Submitted by Chris Hamilton via Econimica blog,

Analysts and talking heads have an awful lot of opinions.  Are we in a bubble or aren't we?  Rather than offer another opinion, I'll offer the relationship of US economic activity (GDP) against the Wilshire 5000 (representing US equities) and the Federal Reserves gauge of American wealth, Z1 Household Net Worth series.  These are the preferred establishment gauges, so take a look and then you decide.

Gross domestic product (GDP) is a monetary measure of the market value of all final goods and services produced annually in the US.  The chart below shows the annual real GDP growth decelerating since 1950.

The Wilshire 5000 Total Market Index, or more simply the Wilshire 5000, is a market-capitalization-weighted index of the market value of all stocks actively traded in the United States.  The chart below shows the Wilshire 5000 vs. the yield on the 10yr US Treasury bond, since 1980.

Interestingly, each top in the equity market saw a "false dawn" or spike in the yield on the 10yr Treasury only to be followed by significantly lower yields on the 10yr.

GDP vs. Equities

The chart below shows the growth in GDP (blue columns), the Wilshire 5000 (red line), and the ratio of the Wilshire to GDP (black line).  Since the early 1970's, the US equities market, represented by the Wilshire, has grown more than 5x's faster than American economic growth (GDP).

GDP vs. US Household Net Worth

Given the sharp rise in asset values, I thought it worthwhile to view the total increase, as shown by the Fed's US Household Net Worth data, versus the growth in GDP.  The chart below shows US household net worth (all inclusive with real estate, equities, and all asset classes) is fast approaching $92 trillion against US GDP of $18.6 trillion.  A simple division of GDP as a % of HHNW (maroon line in the chart below) shows household net worth (asset values) is growing significantly faster than economic activity supporting those valuations.

If you are curious what this looks like over different periods, the chart below suggests the current periods HHNW growth at double the pace of GDP is an aberration.

Finally, from 1950-->2000, the average GDP to HHNW ratio was somewhat consistent around 28%...if the HHNW and GDP ratio are to come back to their 50 year norm (before they were warped by long periods of near Zero Interest Rate Policy and actual ZIRP)...there are two basic options:

Either, GDP rapidly rises $7 trillion (a 38% increase)...Or, the other option is a 28% decline in HHNW, or a contraction of $25 trillion.  A $25 trillion decline in HHNW would equate to an average $200,000 decline in net worth for every household in America.

Those curious why the financial system has been turned upside down, I think an awful lot of the problems can be explained HEREThe solutions are nowhere so simple.  There is no question the federal government will continue to attempt to spend our way out of what is a secular trend of slowing growth HERE, but who will be buying that debt is a very good question HERE.

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flaminratzazz's picture

yes and no simply because amerika was never normal

it is and has always been ruled by liars, murderers and thieves.

but then, as far as the human specie is concerned, that is normal..

I am now confused.

Thank god for the Stupor Bowl. i can piss myself and have a bonafide excuse.

forward-Through The Fog

aroar Har

BigFatUglyBubble's picture

pissing yourself stimulates the economy, just like building walls...

NotApplicable's picture

GDP includes government consumption, so what's the problem here? Surely we haven't tapped out our borrower of last resort yet.

BandGap's picture

GDP included the "Affordable" Care Act, so when they cut those cords it's over the cliff.

I can only hope we get some honesty in the employment numbers someday, too.

Creative_Destruct's picture

YES we're in a bubble. Nothing new. And YES it will return to normal because bubbles are unsustainable and  ALWAYS burst.

We've been in and out and rapidly back into at least 5 bubble cycles in the last 30 years, created by the CBs in tacit cahoots with the politicians.

Only question is, will and CAN we RE-BUBBLE per usual after the upcoming burst? The answer most assuradly to that is MAYBE( biased toward LIKELY).

We will still be able to print, borrow and spend to amp up statistical GDP and make it look good to the neo -Keynsians, who will arrogantly proclaim "victory" again.

But, as usual, it will be a pyrrhic victory. The economy will suffer though additional false mis-pricing signals and malinvestments. And the debt burden will increase exponentially.

And it will weaken further, until, finally, during one of the continuing stupid further bubble cycles, it will REFUSE to be stimulated and come back.

Then the FINAL sustainable adjustment at lower sustainable GDP levels will be in.

Will that be this bust cycle? Could be. TWT.

Paul Kersey's picture

American assets are still in a bubble. As for the 25% of American children on food stamps, the 69% of Americans with less than $1,000 in savings, the 76% of Americans living from paycheck to paycheck, the pensioners who have little chance of retiring with enough pension money to live on, the department stores and enclosed malls shutting their doors and the those students and former students, who will never be able to dig themselves out from the $1.4 trillion in student loan debt, the bubble has already burst.

ToSoft4Truth's picture

We can't help them anymore than we can help a feral cat. 


onewayticket2's picture

Doesnt this (US Only) study miss a key element of equity premiums....namely, that the non US global economy has soared in the last 50 years...and a lot of that growth is reflected in Wilshire PE....agree the US is maturing, but the Wilshire is relecting NOT ONLY US maturity, but also an element not discussed here....the snowballing of NON US growth and that growth's impact on the Wilshire....??


Makes Wilshire look over inflated since the charts discuss US in a vacuum.  when, in fact, the Wilshire is reflecting growth Ex US as well.

Giant Meteor's picture

Get em real cheap at Wally World ..

BandGap's picture

Just pull the fucking pin, already.

And fuck the Super Bowl and the assinine halftime "entertainment".Weak assed beer and car commercials every oohs and ahhs about. Get a fucking life.


flaminratzazz's picture

wow how unamerikan of you..the stupod bowl is an amerikan holiday of mindless consumption 2nd only to the farce they call christmas..

you trying to get deported?

BigFatUglyBubble's picture

I was talking about that today.  After this mother-of-all market correction, there will basically be no Christmas.  People will have to just hold hands and sing around a tree (sans presents) like in the suess' Grinch .  Rejoice at the destruction of the old harlot.

Michigander's picture

Who's playing? Thats how much I care...

chunga's picture

'Murika is in a fraud bubble where way too much gets siphoned off by cronies in pin-stripes that do nothing but skim.

WTFUD's picture

The Elite will fight to the last serf to maintain the status quo.

divingengineer's picture

Then turn the nailguns on each other in a New Zealand bunker.

Giant Meteor's picture

Last Oily Garch standing, I say turn the nailguns on them now dammit ..

Yen Cross's picture

 What part of global overcapacity don't people understand? Facefuck produces NOTHING of value.

 South America and Africa don't need Zuckerturd and Gates.

GreatUncle's picture

The creation of illusionary jobs, part of the minimum wage theme pretending people have a role to play.


For me that really took of during the 1970's, economies stalling during the 1960's.

Giant Meteor's picture

Well, it does produce increasing numbers of snowflakes, but i'm repeating myself (as per you comment)

Giant Meteor's picture

There's an app for that ...

bobby02's picture

US GDP (2015) = $18.04 trillion ; Wilshire 5000 MCap (12/30/16) = $20.5 trillion


20.5 / 18.04 = 1.14 last time I checked, but I guess 5.5 is pretty close if you're autistic.


Certainly a bubble in idiots who think they know something about the economy, markets, investing, higher math.

g'kar's picture

We were doing fine until Trump was elected and suddenly these bubbles appeared out of nowhere

WTFUD's picture

A sarc would enhance this comment!

g'kar's picture

It's a lot more fun to see how people interpret a comment

WTFUD's picture

Yes maybe i'm a touch sensitive having lost faith in peoples ability to think.

BigFatUglyBubble's picture

Orange Messiah says not to worry, he will fix everything. 

GreatUncle's picture

It is amazing how transparent Trump has made the economy, actually just about everything really as the elephants in the room are being called out for what they are.

Not just one elephant in the room, it's a herd of them.

g'kar's picture

Trump's stirred up a lot of hornet's nests and it's only been two weeks. This will be the most interesting and fun presidency in a long time.

Rich Monk's picture

First, remove the marxists from the continent, or line them up against a wall. Second, remove Jews from banking, education, the legal system, and the entire media.

BigFatUglyBubble's picture

It's probably nothing.

flaminratzazz's picture

What this country really needs is

another movie star

Consuelo's picture



That was just F'ing GREAT...!!!


I vote that comment right there, 'comment of the week'.   Shit, maybe even the Year...   Another raised-by-women, castrated George Clooney - coming up...

skinwalker's picture

So, the total wealth in america is claimed to be $92 trillion. That may be true as far as it goes. However, I can see two problems:

1. Total debt and unfunded liabilities are hard to calculate, but certainly much larger than this figure.

2. Nearly every asset class is severely overvalued, implying that at fair valuations the total wealth in America is smaller than the quotes figure.

Between the two it seems clear that America is insolvent.

GreatUncle's picture

Apply that same logic to most western nations.

An unforseen concept of that valuation is most nations are paying to inflate against the deflationary trend.

skinwalker's picture

My understanding is that it behooves governments to push up valuations to nosebleed levels, thus artificially inflating GDP and making the debt load look better.

Subtract .gov spending from GDP calculations and all western nations plus china are in some serious shit.

BlueHorseShoeLovesDT's picture

But but but we voted for Trump to take the pain away

WTFUD's picture

Hey Mr 2 weeks man, play a song for me!

WTFUD's picture

We need a civil war to gut out the parasites.

flaminratzazz's picture

cue the quickly one forgets history

Muad'Grumps's picture

Fitts really had a good interview with Rense the other day. I highly recommend listening to this. What really struck a chord with me was a statement she made towards the end about the predominant philosophy of America's ruling elite: " They believe in the slavery model." And this what I've been screaming about to the socially engineered yuppies for years slobbering over their swelling 401ks. It's all an illusion, a long con straight out of a David Mamet film.


Let's hope Faction B of the Deep State can turn the Titanic around.

GreatUncle's picture

Interesting decline in GDP chart you got there, 8.7% to 1.6%.

You could almost draw a straight line through the negative measure showing the next time it blips it could be -3% GDP or greater.