In September, US household wealth reached $100 trillion, and ostensibly it seems like a positive development for US markets. But, in comparison to the stagnation in actual US household income, it is quite evident that the rapid growth rate of US household wealth cannot be sustained in the long-term.
Speaking to Business Insider, AJ Bell investment director Russ Mould stated:
“Household net worth cannot sustainably grow this much faster than incomes. Assets have been bid up and at some stage there has to be chance that they correct, just as happened in 2000 and 2007.”
According to Mould, the US stock market experiencing one of the strongest bull markets in history and the real estate market continuing to increase in value led to an abrupt increase in household wealth. However, if household wealth cannot be backed by stable income, then the market will be vulnerable to a major correction.
“The difference is likely to be accounted for by the surge in the value of financial and other assets — equities, bonds, property and rankly everything from vintage cars to art to wine to baseball cards. And this is one warning that at some stage another collapse in financial markets will sweep around the globe,” Mould added.
Nouriel Roubini, a widely recognized economist and professor at Stern School, also recently called for a financial crisis in the US market by 2020, explaining that the market has been demonstrating bubble-like behaviors over the past year.
With the discrepancy between US household wealth and income growing exponentially and global debt rising to $250 trillion, Mould emphasized that the US market is due for a correction, whether that will lead to a minor correction or a financial crisis as Roubini predicted remains uncertain.
Viability of Bitcoin as an Investment
Bitcoin, like gold, is often considered as a store of value with no correlation to the broader financial market. It moves independently of traditional assets and commodities, which allows Bitcoin to operate as a reliable store of value in times of uncertainty and market volatility.
While there exists no correlation between Bitcoin and the broader financial market, Matt Hougan, vice president of research and development at Bitwise Asset Management, told Bloomberg in an interview that the decline of the global market does not guarantee a bull market for crypto.
“Non-correlation is not the same as inverse correlation so there’s no guarantee that when the market goes down crypto will go up. Over the long term, we think the fundamental drivers of crypto are different from the fundamental driver of equities and other assets, and we would expect the low correlation to persist,” Hougan said.
Still, considering the increasing demand for Bitcoin from millennials, with surveys finding that over one third of millennials are planning to invest in cryptocurrency within the next few years and 80 percent of American millennials already aware of Bitcoin, it is highly likely that if a financial crisis occurs in the near future as experts predict, Bitcoin will emerge as a viable store of value alongside gold.