Updating a post I did last year on the nation’s wealth gap, I thought the article published by the Washington Post last week was a worthy sequel.  A new study shows that wealth disparity has been accelerating. The study by the Pew Research Center underscored other data showing that the economic growth that has followed the Great Recession has benefited mainly those at the top.

Wealth inequality widened dramatically during the first two years of the economic recovery, as the upper 7 percent of American households saw their average net worth increase 28 percent while the wealth of the other 93 percent declined. The study by the Pew Research Center underscored other data showing that the economic growth that has followed the Great Recession has benefited mainly those at the top. The uneven recovery has only accelerated a decades-long trend of growing wealth inequality in the country, despite rising popular and political awareness of the dynamic.

From 2009 to 2011, the average net worth of the nation’s 8 million most affluent households jumped from an estimated $2.7 million to $3.2 million, Pew said. For the 111 million households that form the bottom 93 percent, average net worth fell 4 percent, from $140,000 to an estimated $134,000, the report said.

The changes mean that the wealth gap separating the top 7 percent and everyone else increased from 18-to-1 to 24-to-1 between 2009 and 2011. Overall, the most affluent 7 percent of households owned 63 percent of the nation’s household wealth in 2011, up from 56 percent in 2009.

The biggest difference between the most affluent group and everyone else is that the wealthiest households have their assets concentrated in stocks and other financial instruments, while others’ wealth is concentrated in their homes.  Both stock and home values were pummeled during the recession. But in the recovery, stock values have rebounded nicely and have reached new highs. Housing values — particularly for those living in nonexclusive areas — have stayed mostly flat, although there have been some stirrings of a recovery in the past year. “It has been a very good recovery for those at the upper end of the wealth distribution,” said Paul Taylor, director of the Pew Research Center and author of the report along with Richard Fry, a senior research associate. “But there has been no recovery for the lower 93, which is nearly everybody.”

Overall, the report said, the amount of wealth held by Americans increased 14 percent between 2009 and 2011, going from $298,000 to $339,000 in inflation-adjusted dollars. Still, only the 13 percent of families with a net worth of $500,000 or more saw their wealth grow, the report said. Every other wealth group saw their net worth decline.

The issue of inequality leapt to prominence in late 2011, when supporters of the Occupy Wall Street movement began setting up encampments in Washington, Lower Manhattan and elsewhere to protest the financial chasm between the wealthiest one percent of Americans and the rest. And it drew attention in the most recent presidential campaign, as President Obama railed against the growing economic divide. Although Obama won the election, many of the tax and policies aimed at addressing the complex causes of inequality have not been passed by Congress. Those that have become law so far have done little to close the gap.

I was reading one of the many newsletters I get (thanks to Tiho at the short side of long and his efforts putting the examples together) and found a piece that refreshed my memory regarding the well-known corollary regarding magazine covers being a contra-indicator. It’s really interesting and a little lighter subject matter and after this week’s action in the markets … a little something on the fun side is needed.

It’s widely known in the halls of Wall St. that more times than not that retail investors are on the wrong side of a trade.  Much of that can be explained not because the fact that they are bad investors, it’s because they usually become aware of an investment too late in the game.  They tend to enter just when the early adopters (institutional money) are looking to exit. And magazine covers, especially those that are widely distributed are a reflection of the public.  And if the public is late, then one would expect magazine covers to be late too. Not to pick on Time magazine but they have a remarkable track record.  Let’s look back at some stellar examples. Source: Time Magazine & Stock Charts (edited by Short Side of Long)

The chart above to the right shows how the 10 Year Treasury Note traded at the astonishingly high levels of 15% per annum. The fact of the matter is that interest rates had been rising since 1949, but it took Time Magazine until 1982 to publish the infamous cover of the legendary Fed Chairman Paul Volcker with the tile “Interest Rate Anguish”. In perfect manner, Time Magazine almost perfectly timed the greatest bond yield peak in history.  Source: Time Magazine & Stock Charts (edited by Short Side of Long)

Time published this cover in 2000. Forget the old economy, mining, shipping and agriculture. Forget Crude Oil at $10 per barrel, Soybeans at $4.30 and Gold at $280 per ounce. In June 2000, Time Magazine’s cover almost perfectly timed the greatest stock market bubble and subsequent crash since black Friday in 1929. Seeing a trend yet? If you would have done just the opposite of what Time Magazine cover was implying, you would have been handsomely rewarded. Source: Time Magazine & Calculated Risk (edited by Short Side of Long)

Next in line after the tech crash? Why yes, it’s of course, housing. Time’s headline? “Home Sweet Home” in June 2006. This was published right at the generational grand top of US housing prices. Time does it again.  Source: Time Magazine & Stock Charts (edited by Short Side of Long)

In October 2008 Time’s cover was implying the Great Depression 2.0. However, the stock market had already crashed and discounted the majority of the bad news. Sure, small further downside was experienced and lingered for another 6 months or so but the bulk of the losses were already booked by the time this issue was released. The SP500 at 800 (the bottom was 666) was, in retrospect, a true bargain. But this was truly a reflection of what the public was feeling.

So, let’s take a look at Time’s latest cover.  Uh, oh!

Source: Time Magazine & Short Side of Long

Is this the death nail for US manufacturing or will Time get this one right?

From the Examiner.com

The recently increased unemployment numbers, as bad as they are, may actually be significantly worse than reported.

The use—or abuse– of Social Security Disability Insurance (SSDI) may mask a large number of individuals who would otherwise be among those who are counted as out of work. According to Forbes, there is now one individual collecting disability for every twelve in the workforce.

The Social Security Disability Insurance program, established in the 1950s, was intended to provide support and medical care for those incapable of working due to injury or disease.

According to figures released by the Social Security Administration, 8,827,795 people were receiving SSDI in 2012, a significant increase over the 7,427,203 in 2008, the year before the current administration took office. The government spent $132 billion on the program in 2011, over twice as much as it did just about a decade ago.

The relationship between the devastated U.S. economy and the rise in disability claims is not coincidental. According to the Business Insider publication, “Since mid-2010, precisely the time millions of U.S. citizens used up all of their 99 weeks of unemployment insurance, disability claims have risen by 2.2 million. Those on disability are not counted in the workforce and are not considered unemployed.”

The rise in SSDI beneficiaries also clears up another mystery, according to the National Center for Policy Analysis. “The population is growing, yet the work force is shrinking. In 2000, the civilian labor force participation rate peaked at more than 67%. In may [of 2012] it stands at 63.8 percent…Social Security Disability claims may be having an impact…Since the beginning of 2009, more than 5 million people have applied for social security disability. About one and one-half million have started receiving benefits. In 1980, about 2.8 million workers were receiving disability, along with about 1.8 million of their dependents. By 2010, those numbers had increased to 8.2 million workers and 2.1 million dependents (not including adult disabled children.). To put this in context, in 1980 about 3% of the working age population (ages 18 to 65) received disability payments. In 2010, more than 5 percent of the working age population received disability payments.”

Investors.com notes that “since the recession ended in June of 2009, the number of new enrollees to the Social Security Disability program is twice the job growth figure. …the big factor in the recent surge is the slow pace of the economic recovery…the number of applicants was up 24% compared with 2008.”

The Brookings Institute’s Gary Burtless, notes that “disability is a fuzzy legal concept. Large numbers of jobless workers manage to meet the legal standard when work prospects are poor to nil…Sadly, once workers are enrolled in the SSDI program, few ever return to work.”

The “fuzzy legal concept” of disability is described by the Organization for Economic Cooperation and Development. Mental disorders such as depression and anxiety have increased by more than three times from the 10% of awards thirty years ago to thirty-three percent currently. The study found that “less stringent screening procedures, more attractive benefits and a waning need for less-skilled workers have bolstered SSDI claims.”