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June 6, 2008 From 4Q02 to 3Q07 $20.2 trillion was added to household net worth (or about $1 trillion per quarter). This easily beats the $17.5 trillion that was added for the 20-quarters ending 1Q00 (or the stock market bubble). In other words, on a very simplistic level the real estate bubble years were more of a boom to households than the stock market bubble years. Also to note, $5.79 trillion was erased from household stock and mutual wealth during the 2000-2002 bear market while real estate wealth actually increased by $2 trillion during the same time. Question: if U.S. household real estate wealth, which increased by $8 trillion from 2000 to 2Q07, is amidst a serious decline, can any asset class can rise to help cushion the fall? The obvious answer is definitely not. After all, it is highly unlikely that the current real estate bust - which has only erased $520 billion from household wealth so far (1Q08) - can be the launch pad for a stock market rally (stocks are the only other major asset class other than real estate that U.S. consumer’s own). In short, money is flowing out of real estate, out of stocks, and out of mutual funds. Is it any wonder that the Fed finally snapped in March? To note: history may be made when the 2Q08 statistics are released in September. The flows statistics have never logged a three quarter decline in real estate and stock prices at the same time. |