Monday, January 29, 2018

Greatest Moments In Profit Taking History...You Were Warned

Even in a central bank driven world, some things probably still matter.  Given the US economy is nearly three quarters premised on consumption; the income, spending, and savings of those consumers probably still matters.  Just two of the most important variables shown in the chart below:
  • Household net worth (value of all assets held) as a percentage of disposable personal income (all sources of income minus the tax paid on that income).
  • Personal savings rate (the amount remaining from disposable personal income, after all expenditures, that is available to be saved in a bank and/or 401k / IRA, etc.).

The chart below, from 1960 through Q3 of 2017, shows that accelerating significant dives in the personal savings rate have preceded each crash in asset prices.

Below I narrow in from 1985 through Q4 of 2017.  The personal savings rate is on the verge of making an all time low while my best estimation for household net worth has asset prices setting new highs versus far slower growing disposable personal income.  I'm not a money manager, not an economist, I have nothing for you to buy, and give this advice freely...but historically speaking, now is the time to sell.
If the current surge in equities and home prices is maintained through Q1, Q1 2018 data is likely to put the HHNW as a % of DPI north of 700%...while the savings rate moves to an all time low.  No one can say for sure what comes next, but historically speaking, this scenario has been unequivocally bad for asset prices (further details HERE).  Bad like the tide receding beyond the horizon before the impending tsunami while you are encouraged by "experts" to go gathering the exposed sea shells.  Plus, the magnitude and damage of each "tsunami" has been significantly more severe than the last (why explained HERE and HERE).  You were warned.