The Modern Stealth Depression

By Todd Harrison  AUG 05, 2011 7:45 AM

There is a difference between a rally and a recovery.

 


Continuing on a theme that Minyanville Editor-in-Chief Kevin "Pepe" Depew introduced in 2008, a growing societal chasm has emerged. For many, it’s downright depressing.

To borrow a quote from that insightful article:

“A Depression doesn't run hot and fierce like some crazed meth burner. A Depression is methodical, purposeful, patient. It will build a shelter out of tree branches and newspaper, light a small, well-contained campfire and wait you out, brother. While you feed on the empty calories of denial and popcorn, it will quietly gather shards of broken dreams and fashion them into a terrible weapon of blunt force reality.”

I’ve long believed the friction between perception and reality is where profitability is found. Looking forward, we can apply a similar smell test to two dynamics that are being bandied about: consumer spending and unemployment.

There are two types of frugality: involuntary thrift (when you can’t afford to fuel up your car to take your family to Applebee’s for dinner) and voluntary thrift (when you’ve got money in the bank but choose not to spend it). At the height of the financial crisis, these crosscurrents collided in spectacular fashion.

Since that time, we’ve witnessed a divergence; the wealthy set has again spent, although they’ve done so in a more discreet manner. Those less fortunate -- many of whom comprised the former middle class before it was outsourced -- continue to struggle.

The resulting dichotomy is akin to a Modern Stealth Depression.

The causal factor for this divergence can be traced to the job market. While the Bureau of Labor Statistics maintains the unemployment rate is hovering around nine percent, they’ve missed the mark in more ways than one.

I understand employment is a lagging indicator coming out of any recession, but I’ll share the following fare:

The most important takeaway from the evolving shift in social mood is this: identifying a personal balance isn’t just about living within one's means, it's about redefining what those means are, adjusting the boundaries, and embracing voluntary thrift.

If the 1990’s were about wealth, accumulation, and consumption, the next five years will continue the mean reversion toward something altogether more austere, if not more sensible.

My personal view is that the stock market could retest the March 2009 lows in 2013. That doesn’t make it right, and the goal isn’t just to position yourself to profit if you’re correct, but persevere if you’re not.

Debt reduction and the rejection of -- and guilt projection toward -- materialism will continue what began in 2008. It won’t just be about doing more with less, but doing less… period, and finding happiness through avenues other than money.

Good luck today; we’ll see you over on The Buzz.

R.P.

Twitter: @todd_harrison

No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

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