Ignore Statistical Oddities at Your Peril

James Altucher wrote a thought-provoking column last week, The Underlevered American Household.

While I am sympatico with several of the points he raises, I vehemently disagree with his take on the relative unimportance of a negative personal savings rate in the U.S. I also believe his views on the net household assets of Americans are oversimplified. These issues are far more complex than was suggested by his column, and I'd like to address them.

Rare Data Events Are Worth Examining

The significance of a negative savings rate is due, in part, to its rarity: It has only occurred twice in the past 100 years. Combine that with the shifting distribution of assets across consumer households, and you have a pair of issues worth exploring.

Together, these have potentially significant ramifications for investors. In particular, they may greatly affect several stock sectors, and are especially worrisome for quite a few specific companies.

Let's start with the negative personal savings rate.

The five-year chart Altucher used reveals that the U.S. personal savings rate slipped into negative territory in 2005. But he was too quick to dismiss this event as "useless," citing the structure of the number. Because of the extremely unusual occurrence of a negative savings rate over the past century, it deserves a closer look.

As the longer-term chart below shows, the U.S. has a negative savings rate for the first time since the 1929 crash and Great Depression.

Personal Savings Rate Keep an eye on what the data says, not how it's constituted.

Click here for larger image.

Source: BEA, Ritholtz Research & Analytics

(Please note that capital gains are not included in personal income at any point on the chart above. Their absence from the last five years of the chart above is not relevant to the overall issue of the negative savings rate.)

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Barry Ritholtz is the chief market strategist for Ritholtz Research, an independent institutional research firm, specializing in the analysis of macroeconomic trends and the capital markets. The firm's variant perspectives are applied to the fixed income, equity and commodity markets, both domestically and internationally. Other areas of research coverage also include consumer, real estate, geopolitics, technology and digital media. Ritholtz is also president of Ritholtz Capital Partners (RCP), a New York based hedge fund. RCP is driven by the analysis performed by Ritholtz Research. Ritholtz appreciates your feedback; click here to send him an email.