Bubble Finance At Work: Asset Inflation For The 1%

From Zero Hedge

A few days ago, the Fed proudly declared that in the quarter ended June 30, household net worth rose by another $1.4 trillion hitting a record $81.5 trillion.

A stunning accomplishment which, however, as we explained, was exclusively due to the artificial rise in financial assets courtesy of $10 trillion in central bank liquidity levered some 2-3 times by the dealer/bank/hedge fund community.

Needles to say, if indeed the US economy had boosted everyone’s income by $1.4 trillion in the past quarter, USD GDP would now be growing at a double digit pace. It did not. So to get a sense of just whose net worth rose by the noted amount, we go to Stone McCarthy which answers the question who benefited from holding stocks directly. To those who have read Piketty, socialist conclusions notwithstanding, the answer was revealed long ago: the entire increase in “net worth” went to a tiny sliver of US society. The richest.

From SMRA:

Since the end of the first quarter of 2009 — when the stock market bottomed — households’ collective net worth has increased by $26.5 trillion. More than 75% of that increase — $20.1 trillion — reflects the change in market value of assets. Gains in the value of real estate assets account for $3.6 trillion of that increase, while gains in the value of financial assets account for the rest.

Of various classes of financial assets, equities held directly by households increased in value the most over the last six years, rising in value by $9.2 trillion. Today’s Chart of the Day shows the cumulative gains in the market value of equities held directly by households.

Not that many households hold equities directly, however. (And it’s important to remember that the household data in the Z.1 report includes holdings of hedge funds, private equity funds and personal trusts.) The Fed’s 2013 Survey of Consumer Finances showed that just 13.8% of families held stocks directly in 2013, down from 17.9% in 2007 before the financial crisis. Our next chart shows the percentage of families with direct holdings of stocks by income percentile in each of the SCFs since 1989.

The share of all families holding stocks directly peaked in 2001, after the dot-com bubble. The share of families holdings stocks declined for most income percentiles from 2001 to 2013, even those families in the 90-100th income percentile.

Bottom line: the gains in net worth associated with holding stocks directly have been concentrated among a relatively small number of households.