What makes someone feel wealthy? Is it the amount of money or is it the change in the money they have (the amount they have today vs. the amount they had yesterday)? From my experience and observation of human beings it is almost always that latter. People are happy when things are improving even if the status is still bad (poor people are happy when they become less poor) while the people are upset if things get worse even if things are still very good (rich are upset if they lose money but are still rich). Although everyone is slightly different and the self reflexive historian may be an exemption I think this generally holds. If the change is more important than the level (remember we’ve just experience a large negative wealth shock), which change is the one that matters? Is it a draw down or level relative to last high, is it 12mth change, is is 3 mth change or something else? This matters because once that change period has passed after a collapse then activity will resume based on the incremental (or next) change. Of course it is not one single change and it is not all about the change the level matter greatly in the long run (and I think it impact the sensitivity to the change). Anyway interesting stuff. The IMF put out a wealth by country chart that gives an interesting picture. I was surprised that the level was relatively similar across the countries although the asset composition was quite different.
Posted by pwswartz 