America’s Economic 7-Year Itch

By Ed Emerson

Every article about investing needs to answer two questions: “Why should I care?” and “How do I get involved?” If it doesn’t (or can’t) it should be neither written nor read.

The quick take:

US households have never been richer, and that suggests the seven-year ‘slow economic recovery’ is holding steady, and the pace of positive change should quicken once fiscal policies change in America following the election in November.

Richer 

In the words of Mike Williams of Genesis Asset Management in Chicago, “US households have never been richer.”

While that statement sits in stark contrast to the enduring headlines about our slow economic recovery, the charts from Scott Grannis at Calafia Beach Pundit show:

US Households

– and –

US personal

Mike continues: “The US Fed has released its latest estimate of the balance sheet of U.S. households.

“The good news? Even as we are living in the weakest recovery ever, household net worth reached a new high in nominal, real, and per capita terms.   

“Note also in the second chart that we have returned to the general level of annual improvement seen for the last 60+ years!

“While we cannot relive the last eight years, there is little doubt that fiscal policies have shaved hundreds of billions off the top of the growth we have all fought so hard for in the recovery process from 2008/2009. Growth would have been the likely result, had better investment and incentives been at the forefront of policy making.”

Why Should I Care?

Mike offers up the following example: 

If you had bought $5,000 (£3,500) of gold at its average price on December 31 1982, they would have given you 13.29 ounces of the stuff.

With dividends and stock splits since then, you would still own 13.29 ounces of gold today (34 years later), and your investment would be worth $16,835.00 (£11,821.50). 

If you’d bought $5,000 (£3,500) of what was then the hated S&P 500 Index, your investment would now be worth $74,751 (£52,489), and that’s without any dividends added – which would bring you closer to $110K (£77,200).

That’s through at least half a dozen or so recessions and/or challenging stock market periods.

How Do I Get Involved? 

You don’t. You get some advice first. Investing is not about unearthing hot tips, it’s about setting your financial goals, coming up with a plan after spending some time finding a good whole-of-market IFA to help you, and then relying on that assistance to keep you focused on your goals and to not make emotional investment decisions.

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