Oct 162012
 
 October 16, 2012  Posted by at 12:06 pm Finance
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Dorothea Lange Baby from Mississippi in truck at the Farm Security Administration camp at Merrill, Oregon October 1939

For all of you who like charts, this is a guest post by Josh Clark at chartistfriendfrompittsburgh.blogspot.com. I'll let it speak for itself.


 

Josh Clark: Business Insider published the presentation David Rosenberg gave at last week's Big Picture conference. There are 57 slides in the show. One of them shows the 5 year percent change of household net worth. It's an extremely bearish chart.

 



 

And it's a chart that lends itself to clear curvilinear wave analysis.

 



 

I knew FRED had this data so I decided to check it out for myself. And then I realized Rosenberg was looking at the raw data in a way that FRED does not allow. They provide a year over year percent function but not a five year option. That's when I decided it was time to spend some time with Excel.

Here are the results…

Household net worth hit a high of $67 trillion in 2007. It's now $5 trillion lower.

 



 

When the stock market starts falling apart again expect household net worth to collapse with it.

 



 

Here's what household net worth looks like on a straight five year change basis – a total disaster.

 



 

Here's what the DJIA looks like on that basis – not exactly bullish.

 



 

Here's what the DJIA looks like on a five year percent change basis – another winner.

 



 

Here's what household net worth looks like on a straight year over year change basis – get ready for another wave of massive wealth destruction.

 



 

And finally no discussion of household net worth would be complete without looking at it in "real" terms. Here's the data adjusted for energy inflation – since 1995 there has been no real wealth creation.

 



 

There is one way to protect yourself from the effects of the upcoming wave of wealth destruction – ride the collapse down like Pasquale Buzzelli by shorting the market. Some of the stock charts I have recently analyzed show the potential for 90% price declines over the next few years.

 


Home Forums Household Net Worthless: Poverty Here We Come

This topic contains 0 replies, has 0 voices, and was last updated by  Raúl Ilargi Meijer 2 years ago.

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October 16, 2012 at 12:06 pm #8427

Raúl Ilargi Meijer

Dorothea Lange Baby from Mississippi in truck at the Farm Security Administration camp at Merrill, Oregon October 1939 For all of you who like charts,
[See the full post at: Household Net Worthless: Poverty Here We Come]

October 16, 2012 at 7:17 pm #6011

Ken Barrows

Ok, so net worth is decreasing. Is the view of the followers here that net worth will skyrocket if appropriate policies are in place? Or is it that contraction is going to come and Goldman Sachs raking in its loot will leave most of us impoverished? If so, policies should address the fairness of the system.

October 16, 2012 at 8:12 pm #6012

p01

Short selling has a 110.001% chance to be banned the femtosecond following a market’s croak. We’re talking TEOTWAWKI this time, not 2008. Nationalizations, expropriations, martial law, and all the fun stuff. Good luck with the plan, though.

October 16, 2012 at 8:18 pm #6013

jal

Cough … cough!

poverty here we come

The message is too late for aprox. 75% of the USA!

If you still have savings and mad money you are definitely not part of the 99%.

Those charts and “Household Net Worth” are only really good for making some elite feel good …

“I got mine and still got it”

October 16, 2012 at 9:06 pm #6014

pipefit

Shorting the market would make sense if we’re headed for deflation. However, hyper inflation is what’s coming. They have the option of defaulting on social security, or creating the money for the ss checks out of thin air. So hyperinflation it will be.

You want to load up on tangible items. Gold is o.k., but with the ever present risk of confiscation, I would suggest a basket of as many different tangible items as you can store. Gold, iron, pipe fittings, copper, lumber, seeds, propane tanks (filled), etc.

When the DOW is at 32,000, you won’t want to answer the phone, it will be a margin call, lol. Yeah, I know the economy sucks. Do you think that will stop the Fed from buying stocks?

October 16, 2012 at 9:09 pm #6015

Golden Oxen

Nice views of the past.

What we need is a chart or charts of the future.

October 16, 2012 at 11:26 pm #6016

sangell

I suspect the number of Americans with ANY positive net worth has fallen dramatically so the ‘average’ net worth isn’t all that useful a measure. People who lost jobs were forced to take cash from their IRA’s,401k plans and any other savings they had so a lot of people who had positive net worth no longer do.

Worse, some who think they still have assets may find they don’t when they try and redeem them. Even those ‘lucky’ enough to have defined benefit pensions guaranteed by a company, municipality or state may find it is gone or reduced when they seek to draw it.

People have been focused on the ‘fiscal cliff’ of late and that is a serious problem but there is also a demographic cliff nearing as the post KOREAN war baby boomers (1953-61) reach retirement age. This cohort is bigger than the WW2 baby boom and when they start drawing down their assets or pension funds do the same to make the monthly withdrawals you have to ask… who will be the buyers?

October 17, 2012 at 12:58 am #6017

Professorlocknload

For 40 years the mantra was “We need more affordable housing.” Now it’s 180′ed to “We need to bring house prices back up,” to more unaffordable levels. That way, the net worth of the 60% of owners will increase, but that of the 40% of renters will decrease. So, let’s build out subsidized HUD housing at a faster rate, to alleviate the glut of homes created by previous subsidy, that will fix it, right? Raise the household net worth of renters by subsidizing their rent, taxing them, and the owners, for the subsidy. Whatever. Central Planning never really had to make sense.

Short the equities? OK, inflation adjusted, or nominally?

And, no one knows when the Fed begins buying equities en mass, if they haven’t already started. It’s their last “Wealth Effect” fairy. They have about chewed the sweet out of the bonds. Where to from zero?

Demographics? What about Mutual Funds? The ultimate financial pyramid scheme? All uninsured. All facing 20 years of net withdrawals. Shhh, don’t want to create an avalanche. But anyone with a dime in these things is a gambler, not an investor.

Poverty here we come, or back to living within our means? It’s subjective.

The illusion of security in life is just that. Back to basics.

October 17, 2012 at 1:38 am #6018

backwardsevolution

“No, Virginia, Consumers Deleveraging by Default is not a Reason for Economic Cheerleading:

Unfortunately, the economy bulls are leaving something very significant out: defaults. The data is pretty clear. In the latest quarter, first and second lien charge-offs were $303.7 billion (with Home Equity Lines of Credit defaults high and continuing to rise). Meanwhile, aggregate consumer debt dropped by $53 billion. That’s better than 2012 Q1, but the drop in debt from defaults is six times larger than the total drop in debt.

Consumers aren’t paying down their debts, they are simply defaulting. And here’s another way to look at the problem. One in seven Americans is being pursued by a debt collector. And the average amount of that debt pursued has increased by about 8% in just six months.”

http://www.nakedcapitalism.com/2012/10/no-virginia-consumers-delevering-via-default-is-not-a-reason-for-economic-cheerleading.html

October 17, 2012 at 2:11 am #6019

backwardsevolution

Leaving the riffraff behind, we move on to the pillars of society, those bastions of morality and fair dealings.

“Thanks to motions filed by the New York Times, a federal judge in Boston released court filings this week that had previously been under seal in a class action, anti-trust lawsuit — Dahl v. Bain Capital Partners — against the eleven biggest and most blue-chip names in the private-equity industry, including Blackstone, Carlyle, Goldman, and TPG. [...]

No wonder the defendants had been keen to keep the case under wraps. The 221-page complaint goes through 27 transactions, and with each, presents not only persuasive economic analysis, but more important, damning e-mails showing how the heads of each of the firms were involved in submitting sham bids, sharing information about their offers, working with management of the target companies to restrict the sales process, enforcing elaborate systems of quid pro quos (for instance, not submitting a bid with the expectation of being cut in on that deal or future deals), and other forms of market manipulation. The messages make clear that the intent was to reduce competition and buy the companies on the cheap. [...]

Private equity firms concentrate enormous financial power in comparatively few hands. Their $2 trillion of assets under management, which they augment with a typical $3 of borrowed money for every $1 of their investors’ money that they put down, translates into $8 trillion of buying power. Compare that to the roughly $16 trillion value of the U.S. stock markets at year end 2011. More people in the U.S. work for companies owned by PE funds than belong to unions. More than half the corporate debt in the U.S. is rated junk, and the high leverage used by PE firms in their deals is far and away the biggest culprit. [...]

I wish there had been more space in the TNR post to provide extracts from e-mails, which are typically among either the heads of the mega buyout firms, or other managing directors. They show a clear understanding of what they were up to. These players were engaged in an effort to collude, by submitting sham bids, not bidding in the auction but being invited in as a co-investor on that deal later or getting a slice of a future deal, all clearly intended to buy the target companies at more favorable prices. You really need to skim the filing. If you thought the quotes from the Libor traders in the FSA’s letter to Barclays were damning, they pale in comparison to this. [...]

As Matt Taibbi has pointed out, bid rigging is not like what the Mafia does, it IS what the Mafia does.”

http://www.nakedcapitalism.com/2012/10/why-is-a-price-fixingcollusion-lawsuit-against-the-biggest-names-in-private-equity-getting-only-cursory-notice.html

http://market-ticker.org/akcs-www?post=212719

http://www.thedailybeast.com/newsweek/2012/10/14/david-stockman-mitt-romney-and-the-bain-drain.html

October 17, 2012 at 2:53 am #6021

jal

… all clearly intended to buy the target companies at more favorable prices.

Geee!
There is not a true market of competition.
Is this the real “free market” that we have always been living under?

I can’t even imagine the “feed fest” that could be happening in Europe.

It must be nice to have access to free money and free loans to be able to make a killing.

October 17, 2012 at 4:02 am #6022

pipefit

The Bain Capital folks, along with the rest of the top 1%, think they are being clever, but they actually hold basically nothing, same as every one else.

In the coming hyperinflation, their dollar denominated assets will be worth zero, same as my dollar denominated assets. A billion times zero is the same as 100 times zero, lol.

I suppose that some of them are all set up on small tropical islands, but they could have done that with $25 million. Twenty five billion buys no extra benefit, for an individual. And how are they going to feed their small armies, when their dollars are worthless?

October 17, 2012 at 5:46 am #6023

jal

Who is making me poor?

My local barbershop owner is not giving up his lifestyle.

Last year, at this time, he raised prices by $2.00 to $12.00.
This year he raised prices by another $2.00 to $14.00.

Since the majority of his clients are seniors, on fixed income, he must be losing a number of his clients.

He might have too many gov. friends advising on what to do to keep his lifestyle.

Would prices go lower or would profits increase when PE firms get involved?

hehehe
The question doesn’t need an answer.

October 17, 2012 at 8:11 am #6024

backwardsevolution

jal – my daughter’s hairdresser raised her prices from $15.00 to 22.00 for a trim, so my daughter trimmed her own bangs the next time and did a very professional job.

October 17, 2012 at 8:52 am #6025

backwardsevolution

For those who think cutting tax rates for the wealthy spurs economic growth, think again:

“A new study by the non-partisan Congressional Research Service (CRS) using data from the past 65 years found that there is no correlation (PDF) between top tax rates and economic growth. But it doesn’t stop there. The study also found that there is a correlation between the reduction in top tax rates and the increasing concentration of wealth toward the top of the income distribution. The report, Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945, is also clear that this is not only about tax rates on regular income, and points out (PDF) that “changes in capital gains and dividends were the largest contributor to the increase in income inequality since the mid-1990’s.”

This practice leads to income inequality.

http://www.ctj.org/taxjusticedigest/archive/2012/09/its_official_cutting_top_tax_r.php

October 18, 2012 at 7:52 am #6031

Nicole Foss

Pipefit,

We are in for several years of massive deleveraging, and the extinguishing of excess claims to underlying real wealth is deflation by definition. The debt monetization is not keeping pace with contraction even under relatively favourable circumstances, and those circumstances are coming to an end. ‘Printing’ will be facing an even bigger headwind soon enough. The risk of hyperinflation lies down the line, after the credit contraction has run its course. That is years away, unless of course you live in the European periphery, where the growing risk of currency re-issue could reduce the time between credit collapse and a classic currency hyperinflation considerably.

October 18, 2012 at 6:47 pm #6033

pipefit

Stoneleigh,

Thanks for the response. I think that when our perception is challenged by facts to the contrary, it is better to look at things through a different lens, to make sure we have it right. In the present case, we know the USA economy is contracting. Also, the USA dollar is slowly losing World Reserve Currency status, as nations stop using the dollar for bilateral trade.

What are the implications of this? First of all, since the USA’s population is still growing, but the amount of stuff we produce is declining, there is less stuff per person. And since the dollar is SLOWLY losing World Reserve status, our ability to mooch off the rest of the world (ROW) is SLOWLY declining. So our total intake of stuff is declining on BOTH fronts, foreign and domestic.

So to make the ‘deflation’ argument, you have to argue that available ‘money’ will decline faster than the supply of goods available for purchase. I just don’t see this happening. For example, food stamps are certainly a money substitute, at least as long as food stores accept them. Do you see this supply of money declining? Obviously not. It is increasing sharply. This is one of several factors in the rise in food prices.

I agree, in theory, that with the USA govt. running a GAAP deficit of $5 trillion per year, the fact that we don’t have $25/gal gasoline is odd, and indicates that there are a lot of deflationary forces. But with Ron Paul’s elimination from the Presidential field last Spring, it is pretty much set in stone that the federal GAAP deficit is headed to $10 trillion, per YEAR, within a few years.

This is where I think you are making your mistake. They will not be able renege on social security and medicare claims, without declaring martial law and instituting currency controls, effectively ending the dollar’s reign as world reserve currency, which is, of course, hyper inflationary. So these $100′s of trillions in claims will be paid with ‘out of thin air’ money.

October 19, 2012 at 1:08 am #6035

PointOneSolutions

So they’ll declare martial law, or maybe something else but you can bet your ass that they will not hyperinflate their wealth away. Yuo grossly underestimate the power of the United States. The biggest SOB on the block will never commit to suicide and can only be taken down by some bigger SOB and the world is still a long way from producing a power big enough to do that. If the world goes down the US will still fare better than most.

October 19, 2012 at 5:51 pm #6039

ChartistFriendPgh

Once The Layoffs Begin They Will Hit Like An Avalanche http://chartistfriendfrompittsburgh.blogspot.com/2012/10/once-layoffs-begin-they-will-hit-like.html

October 19, 2012 at 9:47 pm #6041

jal

Does creeping inflation hurt?
Does borrowing to pay for todays consumption drive prices up?

The rule of thumb is that 7% causes a doubling in 10 years.
Therefore, prices, without considering improvements in mfg or compounding should, after 50 years, have doubled 5 times.
A 10 cent large coke should be about 50 cent.
Do you think that we have had only a 2% inflation over the last 50 years?
Check your facts and memory at.
1957 Sandwich Menu From Woolworth’s… 


http://www.thepastisablast.com/Nostalgia_quizzes/woolworths_sandwich_menu.htm

October 20, 2012 at 2:20 am #6044

Gravity

PointOneSolutions post=5734 wrote: So they’ll declare martial law, or maybe something else but you can bet your ass that they will not hyperinflate their wealth away.

http://www.saveamericafoundation.com/2012/10/19/obama-fema-corp-recruits-conjure-up-memories-of-the-hitler-youth-of-1930s-germany/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+SaveAmericaFoundation+%28Save+America+Foundation%29

Honestly, the US is mostly under martial law already. Military checkpoints are appearing everywhere, and combat units are being prepared to engage the citizenry on all fronts. DHS is heavily entrenched and armed to full capacity, moreover with the appropriation of 1.4 billion bullets and the 30.000 [weaponised?] drones to be unleashed.

Now battallions of indoctrinated homeland-jugend to be deployed.
These are permanent FEMA corps, making the militarised Emergency Management a permanent feature, while domestic military command and control functions are largely transferred to FEMA directly.
The widespread political persecution of lawful dissenters for protected political speech and political activism denotes a demonisation campaign of anyone deemed a constitutionalist, in preparation for round-ups and purges.

If a nationwide state of emergency is declared, likely as a result of fullscale economic collapse or hyperindignation, most scenario’s project open civil war between the hellspawn ‘government’ and that part of the population who will resist the takeover. A civil war could then result in dollar hyperinflation or perhaps hyperdeflation, depending on fate.

If at any point full disarmament of the citizenry is attempted too openly, civil war will almost certainly be triggered, as prudence would dictate kinetic constitutionalism.
Only a select few combined disaster scenarios, such as those involving a pandemic bioweapon release, might interfere with the emergence of a coherent resistance of the citizenry and some portion of the military against the enemy takeover.

If there is no civil war, in either swift or prolonged collapse, the hostile occupying force now in control of the government will otherwise most certainly proceed with systematic extermination of the US population, the evidence for genocidal preparation is everywhere to see. All the infrastructure for mass concentration of [displaced] populations is in place, having an obvious dual use under guise of natural or manmade disaster contingencies [collapse and pandemic scenarios included]. Its undeniable that if the FEMA camps have a combined capacity for interning up to 50 million people, in cascading logistical collapse, there would not be sufficient food supply to keep interned people alive in those camps for ‘re-education’, if that was ever the enemy’s intent.

In several scenario’s, only a timely and proportionate civil war or constitutionalist military coup may prevent a successful and complete genocide of all targeted groups [at least 40-60 million people, basically anyone with a functional moral memory, especially the veterans], and the subsequent establishment of a supertyranny, although full military conquest/liberation of the US by either side would result in >90% casualty rate of the population.

Of course these scenarios are oversimplified with only two sides, red and blue teams under a singular ideological divide [not democratic/republican], while there will likely be geographic and racial subdivisions of the participating combatants, multiple state insurrections and secessions are also possible.

Perhaps the collapse will be so instantaneous that the police state would not activate and commence purging but instead become unravelled, the DHS and military personnel would desert, go home to protect their families rather than follow orders.
Something completely different may happen instead, but as I see it, many plausible scenario’s [admitting the full reality of tyranny and its dark synergy with economic collapse] leave the US with no more than 100 million people left alive by 2020. I pray none of the worst scenarios happen, the collapse itself will be dire enough.

October 20, 2012 at 2:29 am #6045

Gravity

Lucis non sufficit.

October 20, 2012 at 6:53 am #6046

ChartistFriendPgh

A Nation That Doesn’t Make Things Is Not A Real Nation http://chartistfriendfrompittsburgh.blogspot.com/2012/10/a-nation-that-doesnt-make-things-is-not.html

October 20, 2012 at 10:07 pm #6047

ChartistFriendPgh

The Most Undervalued Asset In The World: The US Dollar http://chartistfriendfrompittsburgh.blogspot.com/2012/10/the-most-undervalued-asset-in-world-us.html

October 21, 2012 at 1:22 am #6048

william

Clearly from articles posted many are not getting what seems obvious to me.

My background was in investing where I made good returns for a few years because I had methods of forecasting that were unusual. One part was to follow a companies supply and waste and apply it against a stocks returns to confirm posted earnings. Another was to track misleading statements to see if they were increasing or decreasing.

I pulled out of the markets 10 years ago due to highly deceptive accounting practices and a world wide trend of shortages.

Capitalism only works if there are surpluses. By its own definition it is the redistribution of wealth. If there is no surplus capitalism will not work. This is always the case. Don’t believe it then look at any third world economy. No 3rd world economy benefits from capitalism if there is no real surplus and in fact all the worst cases of dire position are only capitalist 3rd world economies.

What this article proves along with others likewise printed is that we have consumed the grand surplus. We will continue to receive less of the pie because there is less in total. What I mean is never before in even recent history has so much land been put to agricultural use there is no significant amount of useful land yet to be cultivated. Mines have mined out all significant finds and vanes are much smaller today. Fishing industries around the world have fished the stock to its limits. Oil is pulled out of the ground at an ever slower pace. In each and every place consumption is meeting its roadblock of raw material. There is no new find that compares in quality and quantity to what our fathers found.

So this is what is happening – the end of an empire – the end of a concept of capitalism. Its only a problem if one is totally leaning on the idea of capitalism. The idea that we need to consume to feel better. The idea that our neighbours needs don’t matter. The idea that we can consume our way out of a problem.

Its a good thing. The math of the situation is coming home to rest – we consume greatly past our ability to contribute. No one is working hard enough to consume 10 years of natures energy in a few months. Then to believe that your children are deserving of even greater consumption – I will be glad when this evil is over.

October 21, 2012 at 1:26 am #6049

Gravity

The dollar has some use yet, until the Fed has fully spent it, but the most undervalued paper assets will soon be the Bill of Rights and the [re]Declaration of Independence.

On Orlov’s scale of societal collapse, there would be a linear sequence of financial, commercial, political, social and finally cultural collapse.
But this sequence is not proceeding in a linear fashion. The US is far advanced in social and cultural collapse, while the dollars percieved integrity may postpone financial, commercial and political collapse, its the disintegrating structures of the rule of law domestically which may prove the definitive blow to the US empire, resulting in massive civil strife.

In regard to overconsumption and misallocation, the criminal oligarchy considers the US population as superfluous assets needing liquidation, now that the extraction of their labor value is complete.
All economic activity is leveraged on the facilitation and maintenance of a food surplus, and the US is hardly able to produce any food surplus internally without the trappings of empire. Otherwise the centre cannot hold and will consume itself.

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