Financial Bubbles | timiacono.com - Part 3

It’s All About the Dots

The Fed will, at some point, rue the day they decided to make dot-plots showing the collective view of central bank members on where they think interest rates are headed.

Here’s an animated version of the recent progression from this CNN/Money story showing why interest rates rising sooner rather than later has become a concern for investors.

While the graphic will be updated at CNN/Money later today, that may not happen here.

Rosenberg on Inflation and the Fed

Gluskin Sheff chief economist David Rosenberg talks about such things as wage inflation where it matters and nascent rising prices with a ditzy Trish Regan who seems intent on extrapolating from a single month of data (last week’s negative PPI print for May).

Rosenberg has been warning about higher inflation for some time now and it’s worth pointing out that his track record on this sort of thing is pretty good.

I’ll never forget a few years back when he was predicting 10-year yields of 1.5 percent and everyone, including myself, thought he was kind of nuts.

On Wealth, Means, and Medians

Anyone familiar with the math behind mean (average) vs. median as it relates to the graphic below from this CNN/Money story about individual net worth around the world would immediately conclude that we’ve got quite the wealth inequality problem here in the U.S., at least relative to other developed nations.

The much higher average net worth relative to median net worth in the U.S. is rivaled only by Sweden and Denmark, whereas, countries such as France, Finland, Italy, Japan, and the U.K. actually have a higher median than mean.

The math is best demonstrated by the case of Bill Gates walking into a room full of ordinary Americans. While the median net worth would be virtually unchanged, the average net worth of those people would go up by an extraordinary amount (e.g., if  the room has ten ordinary people, the average net worth would rise to somewhere around $4 billion).

Though a stubborn housing bubble (that may not always be so stubborn) has much to do with it, Australia certainly seems to have the whole wealth thing figured out.

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The Housing Market’s Lost Generation

There’s lots of compelling data in this Wall Street Journal story ($) about how millennials are getting off to a difficult start in life, asset accumulation-wise, due to a number of factors, most of which their baby-boomer overlords in government and banking seem to like just fine, yesterday’s student debt relief effort by the Obama Administration notwithstanding.

As it relates to housing, twenty-somethings have been notable no-shows in the recent housing boom for reasons that should be clear in the two graphics below.

Also see this CNBC report on a recent Wells Fargo survey that showed millennials being overwhelmed by debt as never before. It’s not unusual to spend your 20s treading water financially as you cope with finding your place in the world, but today’s younger set certainly seems to have the deck stacked against them.

Just wait til they find out in a couple decades that their baby boomer parents have had to spend their inheritance to make ends meet in their golden years.

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