Recent reports show a major gap in the ratio of wealth to income. Wealth has been outpacing income for a while, but, is that a good thing?
According to CNN, the last time wealth outpaced income at this level was during the great depression, though it came close before the dot-com burst of 1999 and the housing burst in 2007. Some analysts say it’s normal for wealth to be ahead of income, but they add, when the gap gets too large, people may feel overly confident in about their wealth. They also say gaps like this may be signs of an impending stock or market bubble burst.
Paragon Wealth Management Chief Investment Officer Nate White says the stock market has been steadily increasing since it bottomed out in 2009. But incomes have stayed stagnant.
He says, “Lately, what you have is a fear that growth might slow down rather than an actual slowdown in growth.”
However, White says there are some major differences between those market crashes and now. For instance, in 1999, many investors put all their money into tech stocks, even if the tech that company made wasn’t all that great. He says in the mid 90’s, all a company had to do was announce they have a website, and their stock would rise ten points.
Also, in 2007, a large number of people flooded the real estate market as they tried to earn money by flipping houses they couldn’t really afford.
He says, “Just like when the housing bubble burst. It was just getting crazy. There was so much credit out there, just pushing house prices up until it got to a point where it had to collapse.”
Now, White says there doesn’t seem to be one kind of industry that’s being flooded with investors.
“After the fact, everybody can go back and take a look and know it was pretty crazy when it was happening. It was a mania. Right now, it’s hard to find anybody who thinks there is a mania where things are really great anywhere,” White states.
He says if many major indicators are correct, the economy could continue to grow for the next three to six months.
He says, “We could be at the point where income finally starts to creep up and start to close that gap, so to speak.”