Juggling Dynamite

In a financial world that banks on the magic of central bankers and only ever sees upside, growth disappointments are always “unexpected”…

Japan’s growth slowed more than an initial estimate in the third quarter while the country posted an unexpected deficit in its broadest trade gauge in October, underscoring headwinds to Prime Minister Shinzo Abe’s efforts to cement a recovery. Here is a direct video link.

Many commentators are praising “gains” in US household wealth over the past 3 years of central bank support. But as we look at this chart of US household net worth as a percentage of after-tax income, over the past 15 years, intelligent people should recognize that this might as well be a chart of the S&P 500 through its fleeting booms and busts since the secular bear began in 2000. As documented in Robert Frank’s great book: The High Beta Rich, how the manic wealthy take us to the next boom, bubble and bust, spending and economies that are dependent on asset bubbles (and the the boom and bust tax revenues therefrom) are inherently unstable and vulnerable. Bubble prices always mean revert, leaving individuals, families and society as a whole, further and further behind in terms of financial progress, wealth and life years to recoup.

“Compared with last year, the well-off are probably feeling much better this holiday season. The less well-off, whose spending power is dictated more by gains in wages than wealth, aren’t feeling nearly as flush.
Beyond its uneven nature, spending fueled by rising asset values lacks the staying power that income-generated spending does. The Fed reported that third-quarter household net worth equaled 615% of after-tax income, up from 570% a year earlier.
That isn’t as high as the 662% hit in 2007, during the housing bubble, or 616% in 2000, during the dot-com bubble. But those periods are hardly benchmarks of health.” See: Wealth tide doesn’t lift all boats

It seems that even those who have seen their stock portfolios reflate rapidly over the past 12 months are feeling uneasy today. They have now lived through this extreme roller coaster ride 3 times since Y2K. See: Wealthy go frugal this holiday:

“With memories of the 2008 financial crash still fresh, some wealthy shoppers are questioning whether stock market gains to record highs are sustainable and cite conflicting reports about the economy, said Robin Lewis, a New York retail consultant.”

Good far reaching discussion:

Bill Gross, co-chief investment officer at Pacific Investment Management Co., talks about the outlook for the Federal Reserve’s program of quantitative easing, the state of the credit markets, investment strategy and the future of the City of Detroit following its bankruptcy.Here is a direct video link.