I’ve previously shown the AAII survey of equity exposure. Several of you have commented (or emailed) that the AAII data only goes back to 1987.

Household balance sheet data is accumulated by the Fed, and no one makes it look prettier than Ned Davis Research. Using the Federal Reserve data, NDR shows that households are now fully invested, roughly equivalent to 1972 (when rates were much higher)

Not to differ with NDR, but the present levels are only modestly over-exposed to equities — nowhere near 2000, and still a good ways below 2007 peak.

I am not sure we can say the US household is “All In” just yet. Somewhere in the 1200- to 1250 range should get us pretty close . . .

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Chart via Ned Davis Research

Category: Investing, Technical Analysis

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

30 Responses to “Household Equity Exposure”

  1. Mannwich says:

    What if the U.S. Household doesn’t go “all-in” this time?

  2. dead hobo says:

    This chart still has magical qualities about it.

    Holding new money constant, the recovery in the stock market from the lows of a year ago would account for most if not all of the percentage increase.

    The sell side implication is to jump on the bandwagon any buy before they’re all gone and you’re left behind. The reality is probably little new money and mostly a rise due only to a rising market. I can’t imagine people shoveling new cash into equities to chasing a rising market driven by low volume and HFT.

  3. SINGER says:

    like this chart!

    i’ve been thinking the low to mid 1200′s for a long time now… However, I would leave room for an extra 100+ S&P points to the upside before we generate the requisite sucker’s committment and overbullishness…. There is no exact measure of how stupid we can be!!!!

  4. Julia Chestnut says:

    Thing is, wouldn’t a collapse in the value of all other held assets account for a large portion of the “percentage of assets” shift? The stock market has been melting up, while home prices drop, bonds are not going so hot, the yield on Ts is zip, interest rates on (grossly depleted) savings and term investments is zero.

    In short, I doubt seriously that households are “all in,” and I doubt seriously that they are going all in. Households are in survival mode, not looking to turn risk into return. At least that is my observation — could be biased.

  5. dead hobo says:

    Additionally, if the denominator decreases, such as would be the case if the value of one’s home diminishes for some reason, this would also raise the percentage since equities would automatically take a higher percentage of household wealth if the value of everything else goes down. Add a rising stock market from the lows of last year and doing nothing would raise the percentage dramatically while household wealth went down at the same time.

  6. Mannwich says:

    @Julia: Based on anecdotal conversations that I’ve had with people who had been big equities buyers in the past, A LOT of confidence has been lost in equities and “the game” in general. That is my suspicion as well. It’s hard to believe that households will go “all-in” again any time soon, especially with such bad conditions in the real economy. In ’07 and ’00, the conditions in the real economy were pretty good, for the most part. Main Street knows things are far from good right now.

  7. Mannwich says:

    And how many average US households have tons of extra cash lying around to throw at the c@sino stock market AGAIN after such a big pop in the market? Everyone I know is in hunker down mode and nobody trusts that this recovery is real.

  8. The_Speculator says:

    Dead Hobo & Julia Chestnut are both on the correct side of this argument. While charts may not lie, they don’t exactly tell the whole truth (or the entire story) either.

    Most of my friends sold all of their equity holdings near the lows & took on horrific losses. They also, to a man, bought their homes near or at the top. While only anecdotal, I find it hard to believe that their stories differ too much from the mean.

  9. Super-Anon says:

    This is why Bernanke is trying so hard to create a new bubble in equities. =)

  10. Mannwich says:

    @Super: And he appears to be succeeding……….for the time being (and a bubble in commodities). All assets, really.

  11. didn’t you throw up a chart some time ago showing the percentage of equities held by income bracket. Combining that with this chart might be very revealing. I wonder how much of those equities are owned by Hampton money and how many of them are among the group that piled in this time around?

  12. DeDude says:

    Somehow this should be adjusted for the age-distribution of the population. Most people move toward a more conservative investment pattern when they get older. So with the baby boomers getting near retirement we would expect a distribution with less stock.

  13. Transor Z says:

    I’m with Julia. It’s not that this is a bad chart — it’s a very interesting chart IMO. But it needs to be shown at least in conjunction with Historical Total Financial Assets over the same period (in constant dollars). This would help shed a light on performance of other assets Julia alludes to. The current ratio and total dollars only provides a snapshot and not insight into what’s been going on under the surface.

  14. Marcus Aurelius says:

    as soon as everybody is all in, the rug will be pulled out and all of the suckers will be ashamed that they were fooled twice.

  15. Marcus Aurelius says:

    three times, if you count the rogering the banking/government monster gave them.

  16. ashpelham2 says:

    I thought this chart excluded home equity (financial assets). I don’t count my home equity as necessarily part of my investable dollars, even though it is money that is invested, whether I like it or not. For that matter, home prices do not chart the way that equities do, and US home price ROE’s do not compare to US equity ROE’s. It’s not an apples to apples comparison, to borrow a tired, over-used expression.

    I will never be that heavily in equities again, until growth is more organic and there is actually something in this economy to be excited about. I thought the dot.com boom was a revolution for the stock market, but it became a bubble too quickly, and too overheated, and thus burnt a lot of people.

    When green energy or renewable energy becomes a major industry with real growth and money being generated, that might be the next time to be “all-in”. To me, renewable energy, electric vehicles, mass transit, etc is the next frontier for this country, and the world. Right now, it’s rhetoric, with limited influence by the nations of the world, except in tax credits and feel-good speeches. Something with teeth would be “no gasoline or diesel burning engines by 2035″. Or perhaps “no new fossil fuel energy plants to be built after 2025″. Until then, it’s compromise.

    When I hear words like that, I’ll go all in to equities.

  17. rww says:

    It was 14 years from the peak in 1968 to the trough in 1982. The chart shows a declining trend again. Why assume it’s going up from here?

  18. WillieG says:

    This chart perfectly illustrates the “lack of confidence” in the stock market since the start of the Secular Bear in 2000. Each cyclical bull within the secular bear peaks at a lower level. Same can be seen in the secular bear that ended in 1980. The opposite can be seen in the secular bull from 1980-2000.

    I would imagine we would need to see even less interest in stocks, bringing us to 1980 levels to declare the secular bear over.

  19. torrie-amos says:

    i’m w/rww, it’s declining, that ain’t good

  20. And what does this say about where the market is headed?
    It probably doesn’t tell us much, except for the fact that the participants in 2005-2007 took out all their money to buy houses. Perhaps there is a correlation between household asset value, income, and participation in the stock market.

    It’s also interesting the investors in 2000 may not have come back in 2005 an onward.

  21. tagyoureit says:

    Interest rates on treasurys were pretty high when % of HH equity assests were low. Bonds were ‘safer’, and provided near ‘historic’ stock market return, no?

    If I were given the choice, in the face of uncertain returns, I would chose safety. More now than ever.

    10 year – annual http://www.federalreserve.gov/releases/h15/data/Annual/H15_TCMNOM_Y10.txt
    1975, 7.99
    1976, 7.61
    1977, 7.42
    1978, 8.41
    1979, 9.43
    1980, 11.43
    1981, 13.92
    1982, 13.01
    1983, 11.10
    1984, 12.46
    1985, 10.62
    1986, 7.67
    1987, 8.39
    1988, 8.85
    1989, 8.49
    1990, 8.55

  22. scharfy says:

    Awesome chart.

    I dunno, lot of bears on this board. The market seems comfortable with current multiple (15 times 2010 earnings) plus 2 percent dividends which will likely grow due to record corporate cash from lack of capex spending/hiring…. Should earnings grow to 100 your are lookin at 1500 in the S&P….

    The natural question would be how the hell can they grow earnings with their customers not working and in bad shape?

    Thats where I am open to the “decoupling” of corporate America from the working stiffs. Bottom line, they will squeeze us. We will still eat at McDonalds, buy an ipod, watch TV, search on Google, buy gas from Mobil , Bank at Chase and pay our mortgage. We just won’t save a lot or have a lot. This is how the poor have done it for eons and now the middle class can have a turn.

    But this doesn’t mean that Corporate America will die a painful death. They might just keep right on truckin.

  23. TakBak04 says:

    # Mannwich Says:
    March 18th, 2010 at 1:08 pm

    What if the U.S. Household doesn’t go “all-in” this time?
    # dead hobo Says:
    March 18th, 2010 at 1:13 pm

    This chart still has magical qualities about it.

    Holding new money constant, the recovery in the stock market from the lows of a year ago would account for most if not all of the percentage increase.

    The sell side implication is to jump on the bandwagon any buy before they’re all gone and you’re left behind. The reality is probably little new money and mostly a rise due only to a rising market. I can’t imagine people shoveling new cash into equities to chasing a rising market driven by low volume and HFT.
    # SINGER Says:
    March 18th, 2010 at 1:16 pm

    like this chart!

    i’ve been thinking the low to mid 1200’s for a long time now… However, I would leave room for an extra 100+ S&P points to the upside before we generate the requisite sucker’s committment and overbullishness…. There is no exact measure of how stupid we can be!!!!
    # Julia Chestnut Says:
    March 18th, 2010 at 1:17 pm

    Thing is, wouldn’t a collapse in the value of all other held assets account for a large portion of the “percentage of assets” shift? The stock market has been melting up, while home prices drop, bonds are not going so hot, the yield on Ts is zip, interest rates on (grossly depleted) savings and term investments is zero.

    In short, I doubt seriously that households are “all in,” and I doubt seriously that they are going all in. Households are in survival mode, not looking to turn risk into return. At least that is my observation — could be biased.
    # dead hobo Says:
    March 18th, 2010 at 1:18 pm

    Additionally, if the denominator decreases, such as would be the case if the value of one’s home diminishes for some reason, this would also raise the percentage since equities would automatically take a higher percentage of household wealth if the value of everything else goes down. Add a rising stock market from the lows of last year and doing nothing would raise the percentage dramatically while household wealth went down at the same time.

    —————

    What these posters say…and what a few I didn’t quote say. Looking at that chart…what went like a zinger through my mind was: “What if the expectations of past performance in looking at charts about how people perform and judging whether the market is showing trendlines that can be traded on as to when people were “in our out” in past times is really valid in our “current” times. “This Time it Really Could be Different.” What if?
    I’m not buying and I could be buying. If I could get out of my 401-K and IRA at this point without penalty I would be gone. Instead I’m holding non interest cash in one account and dividend stocks that I added to in March drop. But, I’ve been conservative and only added a couple since things imploded and that was because I managed to get out of the crap Mutual Funds that I was forced into in my 401-K and only alternative to get out of them was to move into some cash thing (which I did for safety) which is paying me no interest at this point…but it’s safe.

    I don’t see this economy and the crookery that brought us down three times since the first Junk Bond scandal being cleaned up. I think there are many folks like me who are not buying. And, we might be the “retail small investors” but our money adds up and we aren’t loading the truck up to push this market higher because we are still afraid. Maybe the Big Guns/Investors who are feeling pretty good will “load up the truck” for us.

    I’m pretty cynical…but I want to be safer rather than sorry down the road. This road is looking pretty pot holed since the clean up crew hasn’t come in with the repairs that make me want to sacrifice myself on that road after the last time I went down it it almost wrecked my car.

  24. ben22 says:

    one interesting chart along these lines is NYSE free credit in cash accounts plus free credit in margin accounts minus debit balances in margin accounts.

  25. rootless_cosmopolitan says:

    @scharfy:

    “The market seems comfortable with current multiple (15 times 2010 earnings)…”

    You must be clairvoyant. Or how do you know already what the 2010 corporate earnings (the quite arbitrary “operating earnings” anyway) will look like? Also, explaining a market valuation with what the market is “comfortable” with is just tautological. It was also “comfortable” with the valuations in 2000 and 2007. Otherwise the market wouldn’t be where it is at any valuation.

    @rww:

    “It was 14 years from the peak in 1968 to the trough in 1982. The chart shows a declining trend again. Why assume it’s going up from here?”

    This is an excellent question. There isn’t anything to see in the chart, from which one could validly conclude that the local minimum last year was the absolute bottom in this secular bear market.

    rc

  26. [...] to equities — nowhere near 2000, and still a good ways below 2007 peak,” Barry Ritholtz writes at The Big Picture. “I am not sure we can say the US household is ‘All In’ just [...]

  27. cognos says:

    This chart is completely meaningless.
    It has not been a valuable signal at all.
    The 55-year “avg” is just a dumb line in the middle. It obvious the metric is not really comparable 1950 to 1980 to 2000.

    WORTHLESS.

    Furthermore, “flows” dont drive prices. For the most part, each $1 bought is $1 sold. Marginal pricers drive price. Events, confidence, and general estimate of the future drive price. 1-yr ago, in early 2009, earnings estimates for 2009 were as low as $40/shr on SPX and mainly in the $40-50 range. They came in at $60 for the year. Today estimates for 2010 are $70/shr thus price is headed to 1200+ (16-17x multiple, just average). Actual #s have BEAT for 4 straight Qs. In a modest recovery this will continue to happen and actual numbers will be $80/shr on SPX (30-40% YoY growth). In a strong recovery these estimates will get beat. In the case where “recovery” becomes the accepted trajectory an 18x multiple is reasonable high-side forward valuation… this would be 1,440 on $80/shr… more on next years $100/shr expected.

    Dont be surprised by more upside. It all makes sense. This is what a recovery looks like. (Havent I been saying, “Banks look good. Will turn Q1 or Q2″ for a few months now?

  28. rootless_cosmopolitan says:

    cognos,

    “The 55-year “avg” is just a dumb line in the middle. It obvious the metric is not really comparable 1950 to 1980 to 2000.”

    You mean you presume that the average must be higher for the period from 1980 to 2000, don’t you? From this you conclude the metric is useless.

    “Today estimates for 2010 are $70/shr thus price is headed to 1200+”

    I suppose these estimates are equally reliable as the ones in 2007, or also as the ones in 2009, aren’t they? Also, you always forget to mention that you are talking “operating earnings”, but not retained earnings, or cash flow for the investors.

    “(16-17x multiple, just average)”

    How do you know that’s the average?

    “Dont be surprised by more upside. It all makes sense. This is what a recovery looks like. (Havent I been saying, “Banks look good. Will turn Q1 or Q2″ for a few months now?”

    I see. Your prediction “surprise” to the “upside” serves as confirmation for another prediction made by you before.

    rc

  29. cognos says:

    RC -

    1. Look at the chart. If you think an “avg” line in a chart with 2 big swoops makes any sense… good luck to you. I dont care about the “average” depth of the ocean. It is not a meaningful decision making tool.

    2. Like I said, estimates have been beat for 4 straight Qs. Estimate are actually beat the large majority of the time (>80%?). Estimate fall because of an event or crisis (Lehman, recession). I believe in the business cycle… so generally a 2nd “recession” is far less likely until we have a boom.

    3. I consistently see reliable sources cite the “average” PE as 16.4x. I think this likely is conservative as interest rates and expected rates of return should have come down as market modernize — wealth, liquidity, diversity, etc.

    4. Beyond the “business cycle” – it is further likely that estimates continue to get beat because guidance and expectations are conservative. We have just been through the worst down cycle in 30-70 years. Do you think people are projecting overly rosy? Unlikely.

    5. My earnings numbers and PEs are based are based on the NET number (I think). These two number have not had much divergence since Q1 of 2010. Operating earnings is a much better metric. Why do you care about a bunch of non-cash charges like goodwill? There are lots of 1-time gains that are never brought through earnings (like buy-outs). Companies pay dividends, grow cash, and grow E. Companies get bought by competitors for 50% premiums every week. There is no systematic problem with operating earnings… its probably the best metric.

    6. Your points on “my prediction” is silly. First, I am saying “dont be surprised”. It is far more logical to believe in upside than downside from here (uncertain actual outcome). Second, I am saying… look at the bank YTD. Regional banks are up 20-50% ytd! Look at the REIT plays… GGP is being bid on by multiple acquirers (its gone from under $1 to >$15. Its bonds have gone from $3 to $103 (the kind of “toxic” asset I’d like to own!) C, BAC, GE are all at 12 to 18 month highs and up 20-30%. There are specific reasons for this… information on underlying credit losses — mortgages, credit cards, the consumer… look good. It looks like credit losses peaked in Q3/Q4 of last year. As these come down, this amps bank earnings and restarts the credit cycle (see lending is VERY profitable over the whole cycle… its just that losses are concentrated in 1 or 2 years). You see my point? And that restarting bank credit is a big part of the business cycle?

  30. [...] Both the AAII survey and the Federal Reserve analysis of household total financial assets now shows they are at historical median equity [...]