Saturday, September 17, 2011

Savings vs. Stocks

Click to enlarge.

First of all, the data covers through the end of June. Anything since that time is not included.

The black line shows bank deposits plus credit market assets (treasuries, savings bonds, corporate bonds, and so on) minus credit market liabilities (home mortgages, consumer credit, and so on).

The red line shows the market value of corporate equities and mutual funds.

I've also adjusted both values for civilian employment growth and inflation (August 2011 dollars).

Just look at that divergence starting in the early 1980s. Someone apparently got the idea that the stock market was always a sure thing.

Jeremy Siegel seems to think corporate equities and mutual funds are still a bargain and that savings are in a bubble. I don't think the chart offers much support for that theory.

As for me, I'm kind of expecting the black and red lines to meet up again someday. That's especially true if baby boomers retire and wish to convert stock market profits back into savings, much like I have done. What are the odds of that though?

Disclosure: My nest egg sits on the black line. I own no corporate equities or mutual funds and it is unlikely that I ever will again.

Click to enlarge.

This chart shows the sum of the two values and compares it to the long-term median value. Hey! Look how rich we are even as our economy struggles! I'm sure we'll never return to the median again. It's nothing but real prosperity from here on out. No more illusions!


In all seriousness, both of these charts tell me that as of the end of the second quarter we were back to bubble popping levels. The S&P 500 is down about 8% since then. Some of it is now priced in. But how much?

Just opinions. Be careful out there. This is not investment advice.


August 22, 2011
Baby Boomers May Hold Down Stocks for Decades, Fed Paper Says

Aging baby boomers may hold down U.S. stock values for the next two decades as they sell their investments to finance retirement, according to researchers from the Federal Reserve Bank of San Francisco.

Well, there you go.

Jeremy Siegel, 65, a finance professor at the University of Pennsylvania’s Wharton School in Philadelphia, has also researched the link between demographics and U.S. stocks. He said that growth in developing countries should generate enough demand to absorb a baby-boomer selloff and “keep stock prices high.”

Good grief. He never gives up.

Source Data:
FRB: Z.1 Release
St. Louis Fed: CPI
St. Louis Fed: Civilian Employment


Stagflationary Mark said...

I should point out that all mutual funds are not stock funds. That would alter the charts a bit.

That said, I consider a mutual bond fund to be riskier than bonds held directly. Somewhere along the way we felt it was good idea to pay professionals to do what we can do ourselves. Why?

I'm therefore not sure I would even think of bond funds as savings. There's a speculative element that does not exist to the same degree if you simply buy the bonds directly and hold them until maturity.

Put another way, I think bonds bought directly and held to maturity can be thought of as savings. You cannot hold a bond fund to maturity though. It never matures. At some point you will be forced to sell it to someone else (assuming you wish to liquidate the investment before infinity appears, which would seem likely).

Audrey said...

Wow. For the past 20 years, I have had the feeling that people's wealth was largely illusory. I'm so glad for your chart which confirms that idea.

Stagflationary Mark said...


I'm not even doing the illusion justice here. I pulled the data from the "B.100 Balance Sheet of Households and Nonprofit Organizations" table.

Treasuries are listed as household assets. I consider mine to be assets. The more I own the better. Our national debt is not counted as a liability though. Make sense of that.

When the government sent out a stimulus check I deposited it. My personal household balance sheet apparently improved. I sure don't feel better off though. In theory, as a taxpayer I'll have to pay it back someday.

In Hell's Kitchen (NYC) said...

Siegel, what a crook...while he's writing up his "research" is he also shilling for moving the SS fund into the stock market ? What did we do to deserve these bozos ?

fried said...

CR had a post this morning on US bank deposits...

"Americans are pumping money into bank accounts at a blistering pace this year, sending deposits to record levels near $10 trillion ...

In the last three months, accounts at U.S. commercial banks have increased $429 billion, or 10%, almost double the increase for all of last year."

Much of the discussion was about European money escaping the euro mess, and heading here. Though I expect more than a few Americans are unloading stocks and moving to cash deposits and CDs, for FDIC insurance, if nothing else.
And, Siegel never folks in Brazil and Russia will be happy to buy American stocks at elevated prices to keep us all fat and happy...I do hope he's following his own advice. Or, he has a line on Professor Ariely, and has figures out how to earn 135% of his current income to fund his retirement. Cynical minds would like to know.
all best.

Anonymous said...

- Public announcement GEAB N°57 (September 16, 2011)

Global systemic crisis - Fourth quarter 2011: Implosive fusion of global financial assets

In Hell's Kitchen (NYC) said...'s Siegel salivating at the thought of Bush's dumping SS into the stock market:

Schulz: One of the things that is being debated in Washington that's of interest to investors is Social Security and the Bush Administration's discussion of private accounts. What is your take on that as you look at the Social Security system?

Siegel: I'm very in favor of personal accounts. I'm not so much because they can put money into stocks. Everyone said, "Jeremy, you wrote Stocks for the Long Run, you must be so excited" at the prospect of private accounts. I said, listen, the more important thing is that the people who put their money in, they believe that it is there. Establish that the money you put in, even if it's in bonds, as long as it's ranked as your money, I think that is a political win.

Because right now money goes away, it's a black hole; it may or may not be mine. I think the most important thing is personal ownership of the money you put into the pension system, just like you have protections on the private pension system.

Yeah! your SS money is not really there unless it's in the stock market (when I guess it's not REALLY really there!).

fried said...

Hi Mark,
On a slightly different topic, I've been reviewing a lot of your older TIPs posts...just trying to get some info on reopened TIPs. There's an auction of reopened 10year TIPS that closes on 9/22...given the mess in Euroland, I have been moving some brokerage money market funds to CDs.
Would participating in this auction make sense? Realistically, I am just looking for safe harbor, not returns.
And this seems better than a brokered CD at Vanguard, which is my other choice. I'd really appreciate your thoughts.

Stagflationary Mark said...


Cynical minds would like to know.

They/we do! ;)

Stagflationary Mark said...


Fascinating link.

So, in November 2011 the United States will brace itself for a politico-financial "perfect storm" that will make the summer problems look like a slight sea breeze.

For what it is worth, I too believe the worst is yet to come. It is just a matter of time.

Stagflationary Mark said...

In Hell's Kitchen,

Like Jeremy Siegel, I think the money should go wherever it has done the best over the previous 200 years.

Sarcasm! ;)

Stagflationary Mark said...


Would participating in this auction make sense? Realistically, I am just looking for safe harbor, not returns.

Based on your criteria, I think it would make sense. I think there is a good chance that if it is held to maturity that it will do better than CDs.

In my opinion, the herd is mostly rushing into short-term safe havens out of fears over the longer term.

Even if the herd is right to believe this, then what will the herd do 5 years from now?

If the longer term stinks as the herd fears, then we'll still be stuck in this mess 5 years from now. Will the herd still be content to lose purchasing power at a rapid pace at the short end of the yield curve? Or will it capitulate and reach further out?

I see it as a real yield curve disease. First it infected the short-term yields and it is slowly spreading to longer durations. That's why I went as long as possible to get those higher yields before they became diseased.

I could be wrong of course. In any event, I do plan to participate in the 10-year TIPS auction in January. It won't be a big purchase. It would have been but I already backed up the truck earlier this year. I don't have a lot of truck backing up potential left.

Why 10 years? That's when I'll need the money. I'd go longer out to get higher yields, but I need the return of that principal sooner than that.

Anonymous said...

-Thank You Wall Street-
Under the Umbrella of the so called "Savings and Loan Crisis" Savings accounts of 5-12 % have disappeared so that Stocks could be offered as the "Way to Save". Simply put, Americans have been snookered!!!

Stagflationary Mark said...


We live in an era of snookering.