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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: sonofhino who wrote (53126)	2/8/2006 4:19:01 PM
From: anachronist	Respond to of 110194

Market bears have long touted a negative savings rate statistic as a reason to be skeptical of the future health of the U.S. economy. What are they missing, if anything? Asset appreciation (i.e. capital gains) does not equal savings. Last year personal expenditures were greater than personal income, meaning that people either borrowed, or sold assets, to increase consumption. The fact this article is touting is that assets increased in price faster than households sold them.

To: sonofhino who wrote (53126)	2/8/2006 4:52:01 PM
From: kris b	Read Replies (1) \| Respond to of 110194

The best measure of household savings in the U.S. is the Federal Reserve's quarterly flow of fund accounts, says Claymore's chief economist, Brian Wesbury. According to this data, U.S. households had $62.5 trillion in assets at the end of September, $11.4 trillion in liabilities and a net worth of $51.1 trillion So, what happens when the credit bubble pops, we go into severe depression, household assets go down to 10 trillion, liabilities $ 11.4 trillion and we get negative net worth of $ 1.1 trillion? Has anyone thought about this scenario?

To: sonofhino who wrote (53126)	2/8/2006 4:57:10 PM
From: mishedlo	Respond to of 110194

It is a bullsweet argument. As assets have increased so have debts. He is looking only at the difference ignoring the consequesnces of the debt. Someone buys a $800K condo on 100% financing. That condo rises to say $1,000,000. He is calling that $200,000 in "savings". Of course that is silly. What happens to his model if there is an asset correction? He totally ignores that issue. As long as asset prices keep rising his model will be OK. If housing collapses in the bubble areas his model will go to hell. Finally he ignores the concentration of wealth. The top 5% in the US owns 50% of the assets! That is staggering. A housing plunge will crucify most of the bottom 80% if not bottom 95%. Mish