The latest quarterly update on consumer balance sheets, out yesterday from the Federal Reserve, shows that the net worth of households is closing in on an all-time high relative to income. Inflating asset prices (stocks and homes) are the big driver here. Asset prices can become unhinged from the income they generate temporarily, as my chart proves, but the historical record shows that episodes of income and asset price divergence don’t last long and they are ultimately resolved through a painful busts.
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Jeremy Jones, CFA is the Director of Research at Young Research & Publishing Inc., and the Chief Investment Officer at Richard C. Young & Co., Ltd. Jeremy is a contributing editor of youngresearch.com.