Thursday, December 16, 2010

TD Economics Report: Can Meet Road

Data Release: Household net worth continues to improve, but still impaired by high household debt
Ah, the art of kicking the can down the road.
Household net worth increased by 2.7% in the third quarter of 2010, recouping all the losses experienced in the prior quarter plus some. Net worth increased by 5.6% from year ago levels, which is the slowest pace of growth since the recovery in net worth began in the last quarter of 2009.
• The gain in net worth was largely driven by the rebound in equity markets that bolstered the value of household’s financial assets, led by shares (+6.2%) and life insurance and pensions (+3.3%). These assets are tied to gains in the S&P/TSX which was up smartly in the quarter. Other financial assets that appreciated nicely in the month include foreign investments (+13.7%) and bonds (+3.1%).
• Real estate assets continued to appreciate at a decent clip, with the value of residential structures and land up a combined 1.2%. On a year-over-year basis, real estate assets appreciated by 6.1%.
The rest of the report is a lot of minced words that in short say: oh, we'll be stalled for a while. Five years or so. Go about your business.

This is what happens to household equity when real estate normalizes.

As to the shares, those are paper assets and they are subject to the same winds of consumer confidence as real estate. When those shift, guess what happens to both of them? And insurance entities . . . what are they invested in?

But when all the chips fall, what's left? The paper values vanishes, but the debt load is still there. Claiming debt loads are offset by paper wealth in the middle of a bubble is disingenuous at best. And at this late stage, that's a kind assumption.

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