The Canary In The Coal Mine Has Died...

Zero Hedge | 12/6/2018 | Staff
jster97 (Posted by) Level 3
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What happens when asset valuations rise well in excess of income? Generally bubbles form and then burst. With that in mind...

Wilshire 5000 (red line representing all publicly traded US equities), disposable personal income (dark blue line), real disposable personal income (light blue line), and federal funds rate (black dashed line). During each bubble, assets have appreciated far faster than incomes to support those higher asset prices. Lower interest rates and higher leverage have been used to incent greater quantities of debt...to be paid in the future. All data is through Q3 but not inclusive of the volatility seen thus far in Q4.

Role - Interest - Rates - Asset - Valuations

And what role did lower interest rates play in rising asset valuations (and the encouragement of higher leverage)? Quite a bit. Chart below shows the household net worth as a percentage of disposable personal income versus the federal funds rate...and that is not a pretty picture. Assets valuations have never been higher in comparison to disposable income (what is left to all American's after taxes are paid).

But the HHNW data only goes through Q2 2018...and I still expect to see one more bump in Q3...but after that, the die is cast, and asset valuations will likely be far lower, starting with Q4 and on.

Credit - Card - Delinquencies - Banks - Worth

How could we have guessed it??? Credit card delinquencies among the not top 100 US banks versus household net worth as a % of disposable income (chart below). Essentially, on the way up, it's a party and many folks (including those most marginal) feel rich. But at...
(Excerpt) Read more at: Zero Hedge
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