{"id":26954,"date":"2017-10-17T19:17:50","date_gmt":"2017-10-18T00:17:50","guid":{"rendered":"http:\/\/olduvai.ca\/?p=26954"},"modified":"2017-10-17T19:17:50","modified_gmt":"2017-10-18T00:17:50","slug":"bubble-nomics","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=26954","title":{"rendered":"Bubble-nomics"},"content":{"rendered":"

Bubble-nomics<\/a><\/h3>\n
Question: What is a bubble?<\/div>\n
\n
Answer: A bubble is trade in an asset at a price range that strongly exceeds the asset’s intrinsic value.\u00a0 Or it could also be described as a situation in which asset prices appear to be based on implausible or inconsistent views about the future.<\/p>\n

Question: How do you know when you are in a bubble?
\nAnswer: Gauge asset\u00a0prices against a standard, foundational premise to determine if the price appreciation is warranted.<\/p>\n

Lucky for us, the Federal Reserve provides exactly what is needed to show how unjustifiable\u00a0current prices are against households disposable income.\u00a0 The chart below is all US household’s net worth (current value of all real estate, stocks, bonds, etc.) as a percentage of their disposable personal income (disposable income\u00a0is what they have left to spend or save after paying their taxes).\u00a0 To round out the picture, I’ve added in the net growth in full time workers during each period, dramatically decelerating.
\n
\nSince 1970, every time asset values have risen above 520% of households disposable income (the dashed line in the chart) then the US has been in a bubble and a subsequent crash has followed.\u00a0 This has simply meant asset values\u00a0growing much faster than households income or households capability to sustain those price increases.\u00a0 The depth of\u00a0each crash has been relative to the overshoot of asset values on the upside.<\/p>\n

Why???<\/p>\n

I hear much discussion that the millennials are the largest age group in US history and are expected to drive growth in demand.\u00a0 However, most people fail to understand what this truly means.\u00a0 The millennials are just marginally larger than the boomers but what this truly means is zero growth.\u00a0 The millennials are just\u00a0meeting the previous high water mark the boomers set.\u00a0 When the boomers came through, they nearly doubled the previous high water mark.<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Bubble-nomics Question: What is a bubble? Answer: A bubble is trade in an asset at a price range that strongly exceeds the asset’s intrinsic value.\u00a0 Or it could also be described as a situation in which asset prices appear to be based on implausible or inconsistent views about the future. Question: How do you know […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[1726,39,1799,14704,2589],"class_list":["post-26954","post","type-post","status-publish","format-standard","hentry","category-economics","tag-asset-prices","tag-assets","tag-bubbles","tag-economica","tag-value"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/26954","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=26954"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/26954\/revisions"}],"predecessor-version":[{"id":26955,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/26954\/revisions\/26955"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=26954"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=26954"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=26954"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}