Is there a Bubble in The USA Market, or Is there a Bubble in House Hold Net Wealth in the USA?

Based on the article by Chris Hamilton via Econimica blog, there are discrepancy between the GDP of the USA and the net wealth accumulated inside the USA.

You may ask: “why the GDP and the House Hold Net Wealth (HHNW) should be in some sort of correlation?

Well sunny: the GDP growth = number of people working*their productivity increase.  It means, in order for a country to increase its gross domestic product; the country should either make more people…. or provide them with better tools to make them work more in the same time. Get it? you should either have Johnny and Carlos work 4 hours/day digging two holes/day using shovels… or give johnny a backhoe to dig 8 holes a day in a 4 hour work day.

Now what is the House Hold Net Wealth? it is the summation of all the asset class stuff (cash, house, cars, stock etc). Back in the day, the HHNW used to be created by the domestic forces and it was more tangible (such as houses, american cars, clothing, consumer products etc).  Even the stock market (the other ass class type of asset) used to be connected to the real world a little bit more (PE of 10 t0 12, in comparison to these days stock market with a PE of 80 to 100!! like facebook).

Chris Hamilton via Econimica blog

The char above shows the GDP’s growth rate has been decreasing…. which means either the country hasn’t produced creative people who work in the economy…. or only manage to add people who are in general much much less productive than your average 50s worker. (translation, mass illegal immigration not only didn’t help the economy of the USA, it destroyed it productivity…. also if you take a look at Detroit, Baltimore and the rest of chocolate cities (which are almost ruined), the black population’s migration from the south to the industrial cities in the rust belt; also destroyed those cities).

So what does that mean? if you take a look at this chart below:

Chris Hamilton via Econimica blog

It shows the GDP as percentage of the asset class; had a negative trend in the past 20 years. It only and only can mean one-thing!!! The asset class valuation growth is not created as a result of real world production! It has been created by the means of bubbles!

You may ask: why?

Because if the asset class total wealth of a nation wasn’t just a bubble, it would have grown as means of real world creation of that wealth…. as an example, imagine a city has 200 houses each worth 500K$; now imagine these two scenarios:

1- A builder (let’s say by the name of Donalian Trumpson); comes along and build 200 new houses!

2- An speculator by the name of (let’s say by the name of Cherylberg sandberg-goldberg) comes over and starts to borrow money on negative interest rate and start to give double the price of the house to the residence

In both scenario, the net wealth of the city doubled… in the first scenario: builders got wealthy, contractors got wealthy and probably all of them bought the houses that they created by their own hands…. In the second scenario, the speculator, has doubled her money in no time… lots of people got replaced and lost their houses!

In the first scenario, the household net wealth growth and the GDP, grow together; In the second scenario, the GDP grow in a much less rate than the household net wealth growth.

The second scenario is what we see in the second chart.

If the speculator losses her tight grip over the lender, or the interest rate jumps a little bit higher; the whole phantom wealth created by the cheap money effect, will evaporate in very short time…. or as the kids call it “in da hood” ™®; the bubble would burst in no time.

This chart shows the 10 years USA Treasury bond yield (interest rate)… which predicts the future price of borrowing… which by going down, indicates the price of borrowing money is cheep… especially if you compare that with the price of shares in the picture… it means; if you borrow money today and buy stocks with it, your interest rate would decrease, also you are going to make the difference in the market and your bank interest in profit which is 12.6% percent this year and as the trend shows… the difference between the interest rate and market growth is going to increase.

The good news is… very soon lot’s of asset classes assets (such as stocks, house, gold and so on) will be very very cheap for people who have liquid asset (or just right up cash) in their possession (people like Soros who can borrow (#raise) lot’s of money in very very low prices in a very very short time, from very very friendly foreign treasuries (because if they don’t lend money to him, they might see the flowers of democracy grow in their country from each broken windows)).

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