Forecasts & Trends : Net Worth

Shocking Fed Survey on Consumer Finances

Gary D. Halbert — Tue, 19 Jun 2012 22:19:00 GMT

IN THIS ISSUE:

1. Greece Avoids “Drachmageddon” For Now

2. Americans’ Net Worth Plummeted in 2007-2010

3. Household Net Worth Plunges 39%

4. The “New Normal”?

5. Fed Policy Announcement Due Tomorrow

6. Americans are Definitely Discouraged

Overview

Today we focus on a new Fed study which found that Americans’ net worth plunged almost 39% in the period from 2007 to 2010. That period included the so-called Great Recession, a financial crisis and a severe bear market in stocks. There are lots of interesting statistics to look at in this new Fed study.

I would be remiss not to comment on the results of the Greek elections on Sunday. As I suggested in my Blog on Friday, the mainstream New Democracy party prevailed and defeated the left-wing Syriza party that vowed to default on Greece’s debt and exit the euro. It remains to be seen what happens in Greece going forward, but hopefully it is off the front pages at least for a few weeks.

The Fed Open Market Committee (FOMC) is in session as this is written. Rumors abounded last week that the Fed would vote to enact more “quantitative easing” at this meeting. I have also discussed that possibility in recent weeks. While we won’t know anything until tomorrow afternoon when we get the official policy statement, the markets are anticipating some new stimulus in one form or another. As for me, I’m not so sure.

Greece Avoids “Drachmageddon” For Now

I went out on a limb in my Blog on Friday by predicting that the New Democracy party would win the Greek election on Sunday, and that the left-wing Syriza party would lose. Syriza had promised to default on Greece’s debt and exit the euro. Here is what I wrote:

“There’s an old political saying: ‘Most people will not vote for anarchy.’ If I had to guess, I think the New Democracy party stays in power. I don’t think even the Greeks will vote for anarchy. But I could be wrong.

One thing that makes me think this is the behavior of the stock markets the last two days. You would have thought there would be huge selling to get out before the elections in Greece on Sunday. Instead the markets rallied strongly.”

Greece’s center-right New Democracy party won the election by a narrow margin of 29.7% to 26.9% for Syriza. Obviously, neither party came close to winning a majority of the vote. Antonis Samaras of the New Democracy party is the new Prime Minister of Greece. He now has three days to try to put together a new coalition government.

The vote was widely seen as a Greek referendum on staying in the euro, the currency used by 325 million people across 17 countries in Europe. The vote also suggested that more Greeks think the government should not default on its debts but, again, the margin was very narrow. The leader of the Syriza party vowed to oppose the new Prime Minister at every turn.

The New Democracy party will now have 129 seats in the 300-seat parliament, whereas Syriza won only 71 seats. This means that Samaras will have to reach out to other political groups if he is to be successful in forming a new coalition government. The results remain to be seen.

Irrespective of Sunday’s election results, the Greek debt crisis is far from over, but Greece is probably off the front pages for a few weeks. The focus now shifts back to Spain, which I wrote about in detail on June 5. Yields on Spain’s 10-year bonds soared to a new record near 7.3% on Monday after Moody’s downgraded Spain’s debt three notches to just above junk status.

The situation in Spain is very serious and will continue to negatively affect global stock markets just ahead, in my opinion. It remains to be seen if Italy will be next. I’ll keep you posted.

Americans’ Net Worth Plummeted in 2007-2010

Gary D. Halbert, ProFutures, Inc. and Halbert Wealth Management, Inc.
are not affiliated with nor do they endorse, sponsor or recommend the following product or service.

Every few years the Federal Reserve conducts an in-depth survey on changes in consumers’ net worth and income across the country. Known as the Survey of Consumer Finances (SCF), the latest study covers the period from 2007 to 2010. The survey looks at such things as median family income but also family net worth, which considers all assets such as a home, savings, investments and other assets. The latest survey results were published last week.

The Fed surveyed over 4,400 households in 2007 and another almost 6,500 in 2010. Americans voluntarily answer questions about their net worth. For upper income people who don’t tend to cooperate very well, the Fed resorts to IRS tax returns and other methods to estimate the income and median net worth. All in all, the Fed survey is considered to be a reliable snapshot of families’ net worth across various regions of the country. Here are some of the numbers.

It came as no surprise that median household wealth declined from 2007 to 2010. We had the worst housing bust on record, with home values plunging by 60% in some areas of the country. While home prices have bottomed in some areas, prices are not rebounding strongly even with mortgage rates at record lows.

Another big contributing factor was the stock market crash. The Dow Jones Industrial Average peaked at 14,164 on Oct. 9, 2007 and then plunged by more than half, to 6,547 on March 9, 2009. While the stock markets have recovered much of the lost ground over the last three years, many Americans bailed out during the recession and never got back in.

While the housing bust and the stock market crash were known to have reduced household net worth, few expected the numbers to look this bad in the latest Fed survey. Hold onto your hats!

Household Net Worth Plunges 39%

The median family net worth plunged from $126,400 in 2007 to only $77,300 in 2010. That’s a decline of 38.8% over the period! That is the lowest number since the Fed’s 1992 survey showing a median net worth of $77,244 (adjusted for inflation).

Put another way, two decades of accumulated prosperity simply vaporized in 2007-2010.

But there’s more bad news from the latest Fed survey. Families’ incomes also continued to decline, a trend that predated the financial crisis but accelerated over the same period. Median family income fell from $49,600 in 2007 (adjusted for inflation) to $45,800 in 2010. Note that these numbers are already 18 months old, and conditions could actually be worse today.

Middle-class families were hit hard in both wealth and income during the crisis, limiting their ability and willingness to spend. The recession and the financial crisis did reduce income inequality in the US, at least temporarily, according to the Fed survey. The data show that the average income of the wealthiest families fell much more sharply than the median income, indicating that some of those at the very top of the ladder slipped down at least a few rungs.

The share of families saving anything over the previous year fell to 52% in 2010, down from 56.4% in 2007. Other government statistics show that total savings have increased modestly since 2007, suggesting that a smaller group of families is saving more money, while a growing number manage to save nothing.

The survey also found a shift in the reasons that families set aside money, underscoring the lack of confidence that is weighing on the economy. More families said they were saving money as a precautionary measure, to make sure they had enough liquidity to meet short-term needs. Fewer said they were saving for retirement, or for education, or for a down payment on a home.

The report underscored the limited progress that households had made in reducing the amounts that they owed to lenders. The share of households reporting any debt declined by 2.1% over the last three years, but 74.9% of households still owed something, and the median amount did not change.

The decline in reported incomes could have increased the weight of those debts, tying up a larger share of families’ take-home pay. But one of the rare benefits of the crisis, historically lower interest rates, has helped to offset that effect (credit cards not withstanding). Families also have been able to reduce debt payments by refinancing into mortgages with longer terms and deferring repayment of student loans and other obligations.

The survey also confirmed that Americans are shifting the kinds of debts they carry. The share of families with credit card debt declined by 6.7% over the period to 39.4%, and the median balance fell 16.1% to $2,600. Families also reduced the number of credit cards that they carried, and 32% of families said they had no cards, up from 27% in 2007.

The “New Normal”?

You might be tempted to think that this is just a temporary setback, and that when the economy returns to normal, the typical household will begin to recover from two decades of financial decay. But don’t count on it. Household wealth in the US rests primarily on two things: housing and wages.

There is evidence, as I discussed on May 29, that housing prices have stopped declining in several regions of the US, although some other areas have not stabilized yet. However, while housing prices are stabilizing generally speaking, they are unlikely to enter a new bull market anytime soon. Instead, at best they will probably track GDP growth, as they historically do.

Nor can we expect to see wages rise substantially. Why? Because there are apprx. 15 million people who don’t have jobs. It will be a very long time before these people are absorbed into the labor force again. Until this huge inventory of willing and able labor is put to use, don’t expect wages to go up very much.

This is especially true given that President Obama announced last Friday that he is granting work permits for some 800,000 illegal aliens (it will be more than 800,000 before he’s done). Congress defeated Obama’s first attempt at this, the so-called “Dream Act,” handily.

This latest Executive Order from Obama is very controversial, but we can only assume that White House polling showed that it would be a net positive for the president. That remains to be seen. While the edict will win some Hispanic votes, it remains to be seen how mainstream voters will react come November.

Now a few final thoughts on the Fed consumer survey. Many people were shocked by the latest household survey by the Fed. The 39% plunge in median net worth made headlines everywhere. The question is, where do we go from here? The answer may well be more of the same.

The US economy has a long history of rebounding strongly from deep recessions, but something is different this time around. One reason for that, in my opinion, is the debt overhang. Our national debt has exploded from $10 trillion just few years ago to over $15 trillion today. Trillion-dollar annual budget deficits have become the “norm” under President Obama.

Americans know this can’t continue forever and that the solution to runaway debt will be very painful at some point. Surveys show that most American parents don’t believe their children will enjoy the same lifestyle that most of us have. And finally, there are growing fears that we may be slipping into a new recession.

Fed Policy Announcement Due Tomorrow

The Fed Open Market Committee (FOMC) is meeting today and tomorrow to set monetary policy for the next couple of months. A great deal has been written about this particular FOMC meeting and the likelihood (or unlikelihood) that the Fed will announce a new round of stimulus.

If the Fed feels compelled to implement more stimulus, it is widely agreed that such action would come in the form of expanding “Operation Twist” (swapping short-term Treasuries for longer-dated ones) or a new round of “Quantitative Easing” (QE3).

The feeling is that if the Fed is going to add more stimulus, it needs to do it at this week’s FOMC meeting. If the Fed waits until later in the year to add more stimulus, it might well be seen as a political move to goose the economy ahead of the election. The next FOMC meeting is on July 31/August 1 and the next on September 12-13.

Around 1:00 p.m. EST tomorrow, the FOMC will release its official policy statement from the meeting. The statement may, or may not, indicate if the FOMC voted to approve more stimulus – either extending the Twist or QE3. We just have to wait and see. However, Fed Chairman Bernanke will hold a press conference after the meeting, and his comments will tell the story.

Over the last couple of weeks, we have seen a lot of disappointing news on the US economy, while at the same time the news from Europe has been increasingly troubling as I wrote on June 5. As a result, there has been a growing drumbeat for the Fed to do something in the way of additional stimulus at this week’s FOMC meeting.

But as I explained in my Blog on June 8, I have some doubts. Here’s what I wrote:

“I was not so convinced [about more Fed stimulus], especially after reading yesterday’s Fed “Beige Book” report. The Beige Book is a report published eight times a year by the Fed and is a summary of business surveys taken by the 12 regional Federal Reserve Banks. Yesterday’s Beige Book was decidedly upbeat about the economy and even jobs. This came as quite a surprise in light of the latest economic reports and market action.

I think I can explain why yesterday’s Beige Book was upbeat. The 12 Reserve Banks form their assessment of conditions in their region by going out and talking with business leaders in their respective areas. As I reported on May 29, the CEO Confidence Index jumped sharply in the 1Q of this year, from a weak reading of only 49 in the 4Q to 63 in the 1Q. 59% of business leaders predicted an improvement in the economy in the next six months versus only 32% in the 4Q.

The Fed Reserve Banks were surveying business leaders in April and early May when optimism was higher than in the last few weeks. I believe this explains why the latest Beige Book survey was more upbeat. If that same survey was taken today, I believe the results would be much more cautionary.”

The Fed begins each of its two-day FOMC meetings with a review of economic conditions since its last meeting, which was April 24-25. The latest Beige Book was released on June 6 and was definitely upbeat in its assessment of the economy. So the question for this week’s FOMC meeting is whether the Fed will rely on the June 6 Beige Book assessment, or will it rely more on subsequent economic reports which have been more negative on balance.

The answer to this question will, I suggest, determine if the Fed votes for more stimulus tomorrow, or not. The minutes from previous FOMC meetings this year suggest that Bernanke may not have enough support among the members of the Committee to push through another large round of stimulus, but that remains to be seen. We’ll know tomorrow afternoon.

Americans are Definitely Discouraged

A couple of polls released yesterday confirm that most Americans are discouraged about the economy. According to the latest Rasmussen poll, 62% of Americans feel the economy has slipped back into a recession at this point.

The Rasmussen Consumer Index, which measures consumer confidence on a daily basis, dropped three points on Sunday to 84.9. The index is down a point from a week ago, down two points from one month ago and down four points from three months ago.

The Rasmussen Investor Index fell two points on Sunday to 91.2, just above a five-month low last week. Investor confidence is down a point from a week ago, three points from a month ago and six points from three months ago. Among investors, 61% say the economy is in a recession and only 24% disagree.

In another Rasmussen poll, 52% of Americans believe the economy will be unchanged or weaker a year from now. Only 36% think the economy will be stronger in a year. Fewer than half think the economy will be stronger in five years.

In closing, keep in mind that the Supreme Court is scheduled to announce its ruling on ObamaCare next Monday, June 25. It will be interesting to see how the justices voted after all this time, and even more interesting to see how the markets react to the decision.

Blog Note: If you want to keep up with my latest thinking in these uncertain times, you need to read my weekly Blog. If you have not signed up to receive my weekly Blog, that means you’re missing key information that is not included with my weekly E-Letters that go out on Tuesdays. My Blog is free and I encourage you to sign up today.

FYI, we have recently added a new Wednesday blog. From now until the election, Spencer Wright and I will be giving you insights on the presidential race, complete with analysis on which key battleground states will decide the outcome. Our latest analysis will be out tomorrow afternoon.

To read my latest Blog, click here.

Wishing you a summer of fun,

Gary D. Halbert

Millionaires' Club - Record Plunge In 2008

Gary D. Halbert — Tue, 30 Jun 2009 20:53:58 GMT

IN THIS ISSUE:

Millionaires' Club Shrank at Record Rate in 2008
Global Millionaire Population Still Concentrated, but...
Household Net Worth Continues to Fall
Conclusions

Introduction

With the double-whammy of falling home prices and a major bear market in stocks, and a global credit crisis on top of that, it is not surprising that the number of millionaires in the US and around the world plunged last year.

An interesting new report out last week from Capgemini (a global consulting firm) and Merrill Lynch found that the ranks of the world's millionaires shrank at the fastest rate ever in 2008, with North America suffering the biggest wealth loss worldwide.

The Capgemini/Merrill Lynch annual "World Wealth Report" notes that the global slump in property and equity markets last year cut the number of millionaires by 15% to 8.6 million, wiping out two years of increases. The value of the world's millionaires' assets fell 20% to $32.8 trillion, after a 9.4% increase in 2007, according to the latest report.

Since this weekly E-Letter is primarily sent to high net worth investors, I thought it might be interesting to summarize the 13th annual World Wealth Report for you in the pages that follow. Even if you are not a millionaire, the results of this new study should be both interesting and instructive. The reduction in the number of millionaires may ultimately affect all of us in one way or another as I will discuss later.

Following that summary, we will look at some statistics on household wealth here in the US, which will shed light on consumer spending, the engine of the US economy.

Millionaires' Club Shrank at Record Rate in 2008

The Capgemini/Merrill Lynch World Wealth Report for 2008, which was released last Wednesday, defines a millionaire as someone with a net worth of $1,000,000 excluding the value of their primary residence, collectibles, consumables, and consumer durables (ie – liquid assets). The survey is conducted globally each year. The authors use the acronym "HNWI" to represent High Net Worth Individuals who are millionaires, as defined above.

The Report concludes that at the end of 2008, the world's population of HNWIs was down 14.9% from the year before to 8.6 million, and their wealth had dropped 19.5% to $32.8 trillion. The declines were unprecedented, and wiped out two robust years of growth in 2006 and 2007. As a result, the world's population of millionaires and their wealth ended 2008 below levels seen at the close of 2005.

The global population of millionaires had seen robust annual growth of 7.2% on average from 2005 to 2007, before reversing in 2008. The same trend was evident in HNWI financial wealth, which grew 10.4% per year in 2005-07, before the steep contraction.

The most significant declines in the HNWI population in 2008 occurred in the three largest regions: North America (-19.0%), Europe (-14.4%) and Asia-Pacific (-14.2%). But behind the aggregate numbers lie some interesting developments in the HNWI populations of those regions. The authors summarize as follows:

The number of HNWIs in the U.S. fell 18.5% in 2008, but the U.S. remains the single largest home to HNWIs, with its 2.5 million HNWIs accounting for 28.7% of the global HNWI population.
In Europe, the 14.4% decline in the millionaire population varied widely by country. For example, the number of HNWIs shrank 26.3% in the U.K., but just 12.6% in France and only 2.7% in Germany, which avoided a steep contraction in part because HNWIs there were more heavily invested in conservative asset classes than those in other countries.
Japan, which accounts for more than 50% of the HNWIs in the Asia-Pacific region, suffered a relatively mild HNWI decline of 9.9%, but others in the region suffered greater losses, including Hong Kong (-61.3%) and India (-31.6%).

The apparent resilience of Japan, however, stemmed largely from the fact that the expansion of the HNWI population there had already been capped by the 2007 slowdown in macroeconomic growth and a weakening stock market (market capitalization was down 11.1% in 2007).

The Capgemini/Merrill World Wealth Report also surveys the globe for the super-rich, those with at least $30 million in liquid assets, which they refer to as the "Ultra-HNWIs." The contraction in the overall HNWI population was exacerbated by the steeper-than-average decline (globally and regionally) in the number of Ultra-HNWIs.

A decline in Ultra-HNWI numbers has a disproportionate effect on overall HNWI wealth, because so much world wealth is concentrated in their hands. The Report notes that at the end of 2008, Ultra-HNWIs accounted for 34.7% of global HNWI wealth, but only 0.9% of the total HNWI population.

Recall as noted above that the entire world population of HNWIs was down 14.9% in 2008, and their wealth had dropped 19.5% to $32.8 trillion. Yet the world population of Ultra-HNWIs shrank and lost even more. The number of Ultra-HNWIs plunged 24.6% in 2008, and their wealth was down 23.9%. This is very interesting!

The Ultra-HNWIs (those with at least $30 million in liquid assets) should have access to the very best in money management, and they should be highly diversified. Yet they lost more numbers and more wealth than the mere millionaires.

The authors suggest that the sharp decline in the number of Ultra-HNWIs globally largely resulted from that group's "partiality for more aggressive products, which tend to deliver greater-than-average returns in good times, but delivered hefty losses in 2008." While this may have been true in some cases, I strongly suspect that the losses occurred primarily because many millionaires (along with average investors) bought into Wall Street's buy-and-hold mantra, and when the stock markets plunged, so did their assets.

It is also true that some of the most highly sought after, high profile professional money managers lost 40% or more last year. And who knows, they may have had money with Bernie Madoff! I would also suggest that the plunge in oil prices last year played a role in the losses among Ultra-HNWIs, many of whom are Middle East oil sheiks.

Gary D. Halbert, ProFutures, Inc. and Halbert Wealth Management, Inc.
are not affiliated with nor do they endorse, sponsor or recommend the following product or service.

Global Millionaire Population is Still
Concentrated, but the Ranks are Shifting

The Report noted that the U.S., Japan and Germany together accounted for 54.0% of the world's HNWI population in 2008, up very slightly from 53.3% in 2007, despite the substantial loss of wealth by HNWIs in those countries, particularly the United States. The authors noted:

China's HNWI population surpassed that of the U.K. to become the fourth largest in the world in 2008 (364k HNWIs), after having exceeded France in 2007. In 2008, despite steep market capitalization losses, the closed nature of China's markets combined with robust macroeconomic growth to help China avoid some of the steep losses felt elsewhere.
Brazil surpassed Australia and Spain to reach 10th place among HNWI populations globally (131k HNWIs). It is also striking to note how the financial crisis impacted HNWIs differently in different types of economies. For example:
Hong Kong's HNWI population took by far the largest hit in percentage terms, with a 61.3% drop to 37k. Hong Kong is unique in that it is a developing economy with an extremely high market-capitalization-to-nominal-GDP ratio (5.76). That ratio indicates Hong Kong is particularly vulnerable to large market capitalization declines like the one experienced in 2008 (-49.9%). By contrast, the ratio is 1.49 in Singapore, and just 0.83 in the U.S. Furthermore, Hong Kong has a very large proportion of its HNWIs in the $1m-$5m wealth band, and many of these HNWIs dropped below the $1m threshold in 2008 due to market losses.
India's HNWI population shrank 31.6% to 84k, the second largest decline in the world, after posting the fastest rate of growth (up 22.7%) in 2007. India, still an emerging economy, suffered declining global demand for its goods and services and a hefty drop in market capitalization (64.1%) in 2008.
Russia's HNWI population declined 28.5% to 97k, the seventh largest per-country drop in 2008, after growing at the tenth fastest rate (14.4%) in 2007. Russia's economy decelerated rapidly, in line with the steep decline in global demand for oil and gas. Compounding the problem was the sharp fall in equity markets—down 71.7%, and the largest drop globally.
The U.K. experienced a 26.3% drop in its HNWI population in 2008, to 362k. A mature economy, heavily reliant on financial services, the U.K. was particularly hard-hit by falling equity and real estate values.

HNWI Wealth is Forecast to Resume
Growth as Global Economy Recovers

The authors of the Capgemini/Merrill World Wealth Report are considerably more optimistic than I am about global economic growth over the next several years. (But then what do you expect from Merrill Lynch?) They expect that the US will lead the recovery, along with Asia. I have my doubts, of course, but here are their forecasts:

"We forecast HNWI financial wealth will grow to $48.5 trillion by 2013 [up from $32.8 trillion at the end of 2008], advancing at an annualized rate of 8.1%. This growth will be driven by the recovery in asset prices as the global economy and financial system right themselves.

Also, the 2008 flight-to-safety imperative is expected to ease, encouraging HNWIs to return to higher-risk/higher-return assets, and away from capital-preservation instruments, as conditions improve.

We expect North America and Asia-Pacific to lead the growth in HNWI financial wealth, and predict Asia-Pacific will actually surpass North America by 2013. Growth in these regions will be driven by increased U.S. consumer expenditure as well as newfound autonomy for the Chinese economy, which is already experiencing increased consumer demand.

Latin America is poised to grow again when the U.S. and Asian economies start to pick up, as it has the commodities and manufacturing capability that will be needed during the return to growth. Europe's economic recovery is likely to lag, as several major countries there continue to face difficulties.

In the Middle East, oil is expected to be a less dependable driver of wealth in the future, so growth there is likely to be slower than it has been in the past.

Our global forecasts assume continued difficulties for the global economy in 2009. We expect some initial signs of growth in selected countries, which could pick up steam from 2010, but protracted weakness in the global economic and/or financial systems could force a downward revision in our forecast numbers. [Emphasis added, GDH.]

Notably, HNWI wealth grew at a strong annualized rate of close to 9% in 2002-07—the recovery years following the bursting of the technology bubble. While the tech downturn and the most recent financial crisis are not identical forms of disruption, we nevertheless expect the recovery in HNWI wealth to be similarly robust this time around, as the business cycle starts to trend back up."

While I am not nearly as optimistic as the folks at Capgemini and Merrill Lynch, I certainly hope they are correct. In any event, their annual World Wealth Report is very interesting and appreciated, at least by me.

Finally, I am sure there will be readers who will respond and ask, Why should I care if a lot of millionaires and super-millionaire fat cats took a beating over the last 18 months; after all, I lost a lot of money in the market as well. To that question, I would simply remind everyone that the wealthy create lots of jobs and pay a lot of taxes (top 5% of taxpayers pay over 60% of all income taxes). To that end, their large loss of wealth will have a negative effect on economic growth and the federal budget deficits.

But at the end of the day, what this demonstrates for all investors is that Wall Street's buy-and-hold mantra was a recipe for huge losses over the last 18 months, just as it was during the last bear market in 2000-2002. Perhaps that is why we are seeing a wave of investors seeking actively managed alternative investment strategies such as those I recommend.

Household Net Worth Continues To Fall

The Capgemini/Merrill Lynch report on the plunge in millionaires globally wasn't the only recent source of bad news about last year's drop in personal net worth. According to a Federal Reserve report earlier this month, 2008 was the worst year on record for US household net worth (assets minus liabilities).

Household net worth in the United States declined by $11.2 trillion (-18%) last year and Americans curbed their spending as they watched the value of their assets fall. It was the worst yearly decline in household net worth on record.

In the 4Q of last year alone, household net worth plunged by $5.1 trillion (-9%), the largest quarterly drop in dollar terms on record, going back to 1951, when the government began keeping quarterly records.

On June 11, the Federal Reserve reported that US household net worth plunged $1.7 trillion (-2.6%) in the first three months of this year. That followed the record large drop in 2008 when household net worth plunged (18%). The 1Q of this year marked the seventh consecutive quarterly drop in household net worth.

The continued swift decline in household net worth was caused, once again, primarily by the continued decline in home values and the stock markets in the 1Q, plus the significant rise in the unemployment rate.

The Fed reported that the value of household real-estate holdings, mostly home residences, fell 2.4% in the 1Q to $50.4 trillion overall, down from $51.7 trillion at the end of 2008. Collectively across the US, homeowners had 41.4% equity in their homes in the 1Q, another record low. That was down from 42.9% in the 4Q of last year.

Making matters even worse, the damage to US household wealth in the 1Q also came from the sinking stock market. The Fed reported that the value of Americans' stock holdings dropped 5.8% from the final quarter of last year.

While the equity markets have rebounded nicely since the early March lows, home values have continued to fall, so household net worth on average is almost certainly lower today than it was at the end of March (latest data available). And, of course, we know that many Americans, and foreigners as well, bailed out of the stock markets late last year and early this year and have yet to get back in, so they have not benefitted from the recent rebound in equities and related mutual funds.

This Does Not Bode Well For Stocks

Consumer spending accounts for 66%-72% of GDP (depending on whose stats you use). Almost every forecaster that is predicting an end to the recession in the second half of this year is counting on a revival in consumer spending. I find that wishful thinking in light of the continued fall in household net worth.

It is true that there have been some bright spots over the past few weeks. Consumer confidence has picked up over the last few months from very low levels, although it declined slightly in June as reported this morning. Personal income saw a healthy 1.4% jump in June, thanks in part to the government's stimulus checks. Personal spending and retails sales ticked up slightly in May (latest data available), also from very low levels.

Yet most Americans are increasing their savings significantly, which is more money that will not find its way into cash registers. The Commerce Department reported last Friday that the personal savings rate spiked to 6.9% of disposable income in May, up from 5.6% in April and 4.3% in March. The May savings rate of 6.9% was the highest since December 1993. Most analysts believe the personal savings rate is on its way to 10% by year-end.

So, in addition to the continued decline in household net worth, which is likely to continue all year as home prices fall further, the rapidly rising savings rate does not bode well for a lasting surge in consumer spending just ahead. This is a key reason why I believe we will not emerge from this recession until next year.

Gary D. Halbert, ProFutures, Inc. and Halbert Wealth Management, Inc.
are not affiliated with nor do they endorse, sponsor or recommend the following product or service.

Conclusions

The bear market in stocks, which saw the S&P 500 Index fall by more than 50% from the peak in late 2007, has certainly inflicted a lot of casualties on the world's millionaires and super-millionaires.

The White House National Economic Council estimates that on a global basis, $50 trillion dollars in wealth has been erased over the last 18 months. This includes $7 trillion dollars in US stock market wealth which has vanished, and $6 trillion dollars in US housing wealth that has been destroyed over that period. These declines were unprecedented, and wiped out two robust years of growth in 2006 and 2007.

In 2008, the world's population of millionaires was down 14.9% from the year before to 8.6 million, and their wealth had dropped 19.5% to $32.8 trillion. The super-millionaires ($30 million or more) fared even worse. The number of super-millionaires plunged 24.6% in 2008, and their wealth was down 23.9%.

I found this surprising since you would think that those with fortunes of $30 million or more would avail their portfolios (or at least part of them) to professional money managers and programs that employ defensive strategies that can go to cash or hedge long positions in a bear market.

As most readers know by now, Halbert Wealth Management specializes in finding such professional money managers, doing due diligence on their programs, verifying their past performance records and then recommending them to our many clients across the US.

All of the equity managers we recommend in our AdvisorLink® program performed much better than the stock market in 2008. Some of the equity managers that I have featured in these pages in recent years actually made money in 2008 and thus far in 2009. Of course, past performance is no guarantee of future results.

If you would like to see detailed information on these professional money managers, including their actual performance records (net of all fees), simply CLICK HERE. Remember that all of these programs have the ability to move to cash and/or hedge long positions in case of a bear market. Obviously, that has been a very good option to have in the last year and a half!

As always, if you would like to learn more about the benefits of active money managers, feel free to give one of my professional Investment Consultants a call at 800-348-3601 or visit our website at www.halbertwealth.com. If you prefer, you can also contact us via e-mail at info@halbertwealth.com.

Wishing you a great summer,

Gary D. Halbert

SPECIAL ARTICLES

P.S. Now that the House of Representatives has narrowly passed President Obama's "cap and trade" bill, otherwise known as "cap and tax," you might want to look at the following articles on the subject. Most Americans have no idea what this bill really holds for the future.

The Cap and Tax Fiction
http://online.wsj.com/article/SB124588837560750781.html

Cap and trade being cancelled in other countries
http://online.wsj.com/article/SB124597505076157449.html

Cap and trade bill flunks the math
http://blogs.forbes.com/digitalrules/2009/06/waxmanmarkey-flunks-math.html

No Recovery in Sight
http://www.nytimes.com/2009/06/27/opinion/27herbert.html?ref=opinion