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Five Things: Something Altogether More Austere

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Or at least more sensible.

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1) Something Altogether More Austere

If much of the past 20 years was about accumulating and displaying "wealth," the next decade will continue the mean reversion toward something altogether more austere, if not more sensible. Debt reduction and the rejection of (and guilt projection toward) materialism will continue as meditations on not just doing more with less, but doing less... period.

This new mood and attitude shift is showing up with increasing frequency in mainstream media, as this appropriately-titled piece, "In an Age of Austerity, the Miserly Thrive", which appeared in the New York Times over the weekend shows:

"Millions of Americans have trimmed expenses because they have had their job cuts, or they fear they will," the Times reports. "But a subset of savers are reducing costs not just with purpose, but with relish. These are the gleefully frugal."

More worrisome - at least for anyone not familiar with Irving Fisher - is that while consumer savings typically decreases during recessions, this time around consumer savings has actually increased. I think it's probable we see the personal savings rate exceed 7.5 percent by the end of the year, and that we see a sustained period, perhaps several years, where the personal savings rate exceeds 5 percent.

"The mantra is cut, cut, cut - magazine and cable subscriptions, credit cards, fancy coffee drinks and your own hair."
- New York Times, "Austere Times? Perfect"

Recently I read an interview with the CEO of a major luxury retailer who declared that "we have always lived in an aspirational society." Which is true, but misses the point. What the Times terms "gleeful frugality "is just one component of a structural shift in consumer behavior, not a mere cyclical stoppage. And CEOs who fail to understand the magnitude of this shift will be left holding the bag... literally.


2) "Prices Just Fell Off a Cliff..."


And so the problem remains how to stir up a good, old-fashioned reflationary spike for the economy when the most critical component - consumers - is hell-bent on doing exactly the opposite.

Deflation affects all industries... even the Sport of Kings. The Financial Times reported today concern that the closely watched Newmarket thoroughbred sales are expected to show a sharp price decline when they begin tomorrow.

"People haven't stopped talking about recession," Paul Roy, chairman of the British Horseracing Authority and a former Merrill Lynch banker told the FT. "The trend we have seen oversees is definitely down. Some of the economic issues haven't gone away. There is less money around and less buyers."

"Prices just fell off a cliff," Dina Astell of the Racehorse Owners Association, told the FT. "Trainers who used to get credit from their banks stopped getting credit."

Deflation is relentless. And when the psychology becomes entrenched, the death grip on the economy is near impossible to break... artificially, at least. That leaves but two remedies; price and time.
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