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Household Debt & Net Wealth: Streak Ends at 18

Summary:  Adjusted Household Net Wealth is just south of peak 2007 levels, Household Debt-to-GDP continues to decline and aggregate household credit growth went positive for the 1st quarter in 18 alongside sequential increases in both consumer and mortgage debt.   A summary review of household debt & balance sheet trends from the latest, 3Q13 Flow of Funds report from the Federal Reserve below.   



Household Net Wealth:  Household net wealth is +13.6% above the prior 2007 peak on a nominal basis, +2.7% on a inflation adjusted basis, and -1.5%  when adjusted for both inflation and the number of households.  Reported net wealth should continue to advance alongside ongoing home price growth and higher equity market highs. 


Putting aside the disproportionate benefit and wealth equality implications stemming from financial asset price inflation, asset/collateral inflation and a strengthening in the aggregated household balance sheet should continue to drive some measure of wealth effect spending and support capacity for incremental credit (more below).


Household Debt & Net Wealth:  Streak Ends at 18 - US Household Balance Sheet 3Q13


Household Debt-to-GDP:  Household Debt/GDP continues to fall as GDP grows at a positive spread to nominal debt.  At 77.5%, we’re currently 18.1% off peak 2009 Debt/GDP levels and have nearly retraced back to (1) trend although there still exists meaningful downside to longer-term averages.   


Household Debt & Net Wealth:  Streak Ends at 18 - Household Debt to GDP


Household Debt vs. Consumption:  Pre-Crisis

After moving largely in lockstep for five decades, household debt growth went exponential in 2000, decoupling from consumption growth which kept tightly along the path of a second order polynomial – which is just a mathy way to say debt growth exploded but with diminishing marginal impact on consumption growth (ie. every dollar increase in debt produced increasingly less than a dollar of consumption growth).


This debt-consumption interplay is a  typical antecedent of financial crises whereby incremental debt is used to speculatively acquire already overpriced (financial) assets instead of going towards entreprenurial or productive output/investment.   The red, long-term trend line in the second chart below reflects debts increasingly ineffectual ability to drive incremental consumption.   


Household Debt & Net Wealth:  Streak Ends at 18 - HH debt vs consumption


Household Debt & Net Wealth:  Streak Ends at 18 - HH debt vs consumption Chg


Household Debt Growth:  3Q13 Inflection

After 18 consecutive quarters of decline in YoY credit growth, aggregate household debt grew +1.3% in 3Q13 as consumer credit (~23% of total) accelerated to 6.3% YoY and Mortgage debt (~72% of total) accelerated to -0.8% YoY from -1.8% in 2Q13


Household Debt & Net Wealth:  Streak Ends at 18 - HH Debt QoQ   YoY


Debt Growth vs. Income Growth:  Upside in Credit

Despite its patent obviousness, that fact that debt growth in excess of income growth is unsustainable remains, perhaps, the most glaring example of willful economic blindness for developed economy consumers and bureaucrats . 


When growth in credit exceeds growth in income for 30 years and monetary policy becomes impotent as a support at the zero bound in rates, the long-term credit cycle ends with a 2008 style de-leveraging fireworks. 


As can be seen in the chart below, in the wake of the financial crisis and through to the present, income growth has advanced at a positive spread to debt growth. With debt growth turning positive in 3Q alongside continued labor market strength and broadly positive mortgage, auto, and consumer loan trends, positive credit growth is set to continue. 


The closing of the delta between income and debt growth represent the upside to credit driven consumption.


Household Debt & Net Wealth:  Streak Ends at 18 - HH Debt growth vs Income growth


Christian B. Drake





Please join us for an in-depth look at the upcoming Hilton (HLT) IPO with a conference call today at 2:00pm EST.  HLT IPO will be the largest lodging IPO and the 3rd largest IPO of the year.




  • HLT stock should trade well
    • NAV supports at least a $22/share valuation
    • High end of the offer range implies an EV/EBITDA ratio in line with the comp set
    • HLT is just one of many Blackstone portfolio companies that it will look to bring public over the next 12-24 months- including LaQuinta which is likely coming in January 2014
    • Blackstone will make a hefty profit on the IPO, so there is plenty of pie to pass around
    • Once the lock-up expires, Blackstone will be back to the secondary market with more stock - they will own ~80% of the company post IPO, so they have a lot riding on the stock trading well
    • Leveraged balance sheet but plenty of FCF generation will allow HLT to get to 3.0x-3.5x by the end of 2015 without counting on proceeds from asset sales


  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 572198#
  • Materials: CLICK HERE


Through the first 9 days of December (actually 11/30-12/8), average daily table revenues grew only 2% from the comparable period last year to HK$947 million.  It’s still too early to garner any read from the numbers.  Our current full month GGR forecast for December growth is +10-16% growth.  In terms of market share, Wynn Macau is off to a good start while MGM and MPEL are lagging.  Market shares this early in the month mean very little but we will reiterate that we believe Wynn may be in the middle of a market share turnaround with its Mass marketing efforts (finally).  We also like LVS as share gainer over the year.  MGM and MPEL look like share losers to us.





[VIDEO] Keith's Macro Notebook 12/10: $USD, OIL, UST 10YR

December 10, 2013

December 10, 2013 - 55

Fed Repercussions

Client Talking Points


The Dollar is down for FIVE weeks in a row now. It is officially in a Bearish Formation as the Federal Reserve whispers sweet nothings of having a policy that is clearly not data dependent. Across the pond, both the Euro and Pound are loving this lack of US currency credibility. On the margin this is good news for European purchasing power.


Shhh. Don’t tell the Fed, but that Down Dollar? It's kick-starting that ole 2011-2012 style inverse correlation to Commodity Inflation again. Brent Oil versus US Dollar has an inverse correlation of -0.66 now on a 6 week duration. Both Brent and WTIC are up about 1% this morning after Brent held our Hedgeye TAIL risk support of $109.07/barrel. We covered our Oil short yesterday.


Not to be confused with data dependence, the Federal Reserve has a policy outcome that will stand, irrespective of the data. If that means a lower-high for bond yields (versus the September pre-no-taper highs), the 10-year could easily drop 20 basis points from here. We're watching 2.80% as an immediate-term momentum line.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Our bullish call on the British Pound was borne out of our Q4 Macro themes call. We believe the health of a nation’s economy is reflected in its currency. We remain bullish on the regime change at the BOE, replacing Governor Mervyn King with Mark Carney. In its October meeting, the Bank of England voted unanimously (9-0) to keep rates on hold and the asset purchase program unchanged.  If we look at the GBP/USD cross, we believe the UK’s hawkish monetary and fiscal policy should appreciate the GBP, as Bernanke/Yellen continue to burn the USD via delaying the call to taper.


WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.


Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks.  T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.

Three for the Road


GOLD: continues to make a series of higher-lows (vs June) and we remain long of it @KeithMcCullough


"Don't count the days, make the days count." - Muhammad Ali


The average cost of tuition and fees at a public, four-year institution for an in-state student is $8,093. At a private four-year university, tuition and fees are more than $30,000. (MarketWatch)

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