As 1980’s big-hair, New Jersey band Bon Jovi sang, US households are “Living on a Prayer.” Or The Federal Reserve-created massive asset bubble.
As of 2016, the mean net worth of US households was a whopping $692,000! And the median is $97,300.
Quite a disparity.
Of course, The Federal Reserves zero-interest rate policy (ZIRP) and quantitative easing (QE) helped created massive asset bubbles that have helped households to historic high net worths.
Housing is one of the recipients of The Fed’s quantitative distortion (QD).
One indicator? Home prices are still growing almost twice as fast as average hourly earnings.
These are no “Tiny Bubbles”.
But YUGE bubbles. Hence, American households are living on a prayer that the massive bubbles don’t burst.
On a side note, I used to live in Rumson NJ and Jon Bon Jovi used to run by my house on the weekends (sans the big hair).
There is a lot of fear and uncertainty in financial markets: the US Federal government shutdown, May’s Brexit defeat, trade anxiety with China, postponement of Nancy Pelosi’s entourage 7-day excursion to Brussels, Egypt, and Afghanistan, the Mexican border wall, etc.
But given all the fear and uncertainty in financial markets, the VIX 1-year implied volatility has actually been declining … and its decline coincides with The Fed’s Quantitative Frightening (QF) or the shrinking of The Fed’s balance sheet.
Quantitative frighening or numbness?
Typically, a company with negative free cash flow indicates an inability to generate enough cash to support the business. Free cash flow tracks the cash a company has left over after meeting its operating expense.
But when 58% of the United States stockss have negative free cash flows … we got trouble in River City.
But Canada is even worse at 82%.