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Tall (Re)Tales


Can personal savings go below 0%?

Having written extensively about the perverse incentives that the Fed and the administration is creating for corporations in the employment arena that are "causing" the lack of employment growth we've seen, I won't belabor the point by bringing it up again. Just know that the consensus for the February employment additions now stands at 125,000 (to be released on March 5th), which remains not only optimistic, but also far lower than the level necessary to be called "robust" (Secretary Chao's choice of adjectives notwithstanding).

You already know that I believe that the US consumer is living on borrowed time: a lack of employment and wage/salary income growth are combining to force consumers into savings-, asset-, and tax refund-based spending. For example: the drawdown in personal savings rate from 2.7% in August to December's 1.3% - a new record low - accounted for the vast majority of consumer spending in that time frame). You already know about mortgage refis and the equity extraction that has underpinned spending (and that have slowed materially in the last few Qs).

Which brings us to tax-rebates, which are now being mailed out. Something on the order of $60 billion in tax rebates are set to be delivered in 1H as lower withholdings and outright refunds hit consumer pocketbooks. Toddo mentioned earlier how retailers have had a bid and act as if they are a crowded short; the IRH index (underlying index for the RTH) is mere ticks away from registering a new cycle high.

With a few more dollars in the pocketbook, consumers almost certainly will spend their tax rebates in the next few months before retail sales revert back to some normal "mean". Retail stocks (and the IRH index in particular) could be in the midst of one last blow off. Keep a frequent eye on it; it could provide an important tell for the economy and the markets at large.
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