“The primary difference between Japan and the United States at this point of their respective monetary malaises is that whereas Japan created a nation of zombie corporations, the United States is creating a nation of zombie households.”
– James Aitken, Aitken Advisors
Today’s chart of the day comes from the Annaly Mortgage blog. Annaly previously noted that the primary difference between Japan and the U.S. is that Japan created a nation of zombie corporations while the U.S. has created a nation of zombie households. Annaly elaborates on the topic by showing not only the unemployment rate in historical terms but also shows just how stretched the housing market remains – even after the massive price declines. Although recent retails sales have ticked higher, it’s difficult to disagree with the Annaly analysis that the U.S. is becoming a nation of zombie households – particularly given the continued de-leveraging, high private debts and loss of wealth in every citizen’s largest assets.
As the graph makes very clear, however, this market is undergoing significant change, as all of the data are running outside of the two standard deviation interval (we would argue that the pink line-total homes for sale-is only down because folks are taking unsold homes off the market). To get granular, let’s pick one data series and data point. Delinquencies as a percent of total loans since 1982 have averaged 4.93%. One standard deviation from the mean over that time period is 0.88%, meaning that 68.3% of all of the data points will fall within a band of 4.05% to 5.81%. The latest data point (Q209) for delinquencies of 9.24% is 4.31% higher than the mean, or just shy of five standard deviations, a very rare occurrence indeed (99.9999426697% of all data points will fall within five standard deviations). We expect that all of these data points will continue to fall in the skinny part of distribution tails-for example today’s unemployment print (which is not on the graph) of 10.2% is 2.73 standard deviations from the mean, up from 2.46 last month.
If this isn’t Zombieland, we don’t know what is…
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.