Five Things: From Generation Boom to Generation Sav-A-Lot
Kevin Depew's Five Things You Need to Know to stay ahead of the pack on Wall Street:
From Generation Boom to Generation Sav-A-Lot
Remember these days. These dark economic times will one day be accused of leaving enduring imprints on those who are living through them. Of course, it is really social mood that is responsible for this shift, but in the desire to offer a narrative, a linear explanation to what we are living through, historians will prefer to mark this economic crisis as a turning point in consumer behavior.
Evidence of this shift seems to accumulate by the hour. This morning the Wall Street Journal took a look at the "new frugality" in this piece, "Hard-Hit Families Finally Start Saving, Aggravating Nation's Economic Downturn," noting the role that "savings" plays in the economy:
"Usually, frugality is good for individuals and for the economy. Savings serve as a reservoir of capital that can be used to finance investment, which helps raise a nation's standard of living. But in a recession, increased saving -- or its flip side, decreased spending -- can exacerbate the economy's woes. It's what economists call the "paradox of thrift."
Reservoir? What Reservoir?
Wait, let's back up for a moment. While this part in the Journal article - "savings serve as a reservoir of capital that can be used to finance investment, which helps raise a nation's standard of living" - certainly is true, the real problem is blissfully glossed over into the next sentence on the "flip side" of savings, where "decreased spending... can exacerbate the economy's woes."
See, while decreased spending exacerbates economic woes, that's not the real issue. The real issue is related to first half of the equation; a reservoir of savings. We haven't had a "reservoir of savings" in this country in nearly two decades. Indeed, the central bank, by disguising that lack of savings with artificially low interest rates, is the reason this necessary step to repair consumer balance sheets and restore saving sis going to be so very painful.
The bottom line? Consumers are now saving and repairing balance sheets. This is a secular trend, not a temporary aberration, that will crush consumption for far longer than even the most bearish economists expect.
Meanwhile, even as asset price (stocks, junk bonds, etc.) deflation temporarily stalls, guess what is happening to the labor market and wages? They are deflating at a near-record pace. moreover, this is not just happening in the U.S., but globally. You do not get inflation from this kind of structural deflationary debt unwind, at least not for many, many years.
So, those who today are selling Treasuries, buying risk assets and hoarding gold in anticipation of "The Coming Great Inflation" will, ironically, be among those contributing to the elements of structural deflation in the not-so-distant future.
Winner Winner, Chicken Dinner
Although firm details are only beginning to emerge, among the few clear beneficiaries of President-elect Obama's economic stimulus plan are municipalities; at least that is the perception being reflected in the closed-end funds that are related to municipal bonds.
Muni-related closed-end funds showing breakouts today, include:
- Intercapital Quality Muni Trust (IQI)
-
BlackRock Florida Municipal 2020 (BFO)
-
Van Kampen Trust for Insured Municipals (VIM)
-
Nuveen Premier Ins Muni Fund (NIF)
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Leverage is million dollar contests which are held this month.
Racing is the only business left in this world where management
has both it's head and butt in the sand.
Frank
Masking the non-savers with low interest rates is the hammer on the nail. Now the savers will be punished, as the risk takers are bailed out. This is the most heinous of the crimes.
Frugality is the new chic, but not profitable for the early adopters. That's not how capitalism works.
One lives to learn. Thank you for the great piece and for holding your ground there. Wright or wrong, consistency is a scarce commodity these days. Do have a wonderful year, Kevin
The fall in horse racing over the decades is not unlike, though far less drastic than, the collapse of the American auto makers. Both were businesses that behaved for far too long as if they had no real competition.
Horse racing, ironically, is a sport/game that should thrive in the Internet era of information, color and media.
I still find it hard to believe that people would rather mindlessly stuff quarters in slot machines than use their brains to pick a horse race, but this is one of many trends I've fought unsuccessfully.
As long as interest rates are held to low level by the Fed less will be saved than would otherwise be the case - and necessities (obviously not houses because we have a 1 year surplus of those)will continue to be bid up in price by consumers.
This process will be protracted in time because the 800 lb gorilla without a brain is Uncle Sam (in matters of the economy, gorrillas are pretty good at testing the durability of suitcases - but little else).
Hey, no worries, KD - I'm just nickel-and-dime-ing ya.
American consumption is a philosophy of life; an entitlement to "the good life". Proof that their deity's favorite country is truly the BEST in the whole-wide-word. Consumption is the reward for patriotism.
We'll know people are really saving when restaurants are empty and people start canceling their 5000 channel cable packages. The peasants I know aren't doing any of this. They're still buying flat screen TV's (it's on sale dude, I can buy it now and save, dude – and dude, I don't gotta pay for 3 months, dude) and still eating out at lunch, which is still 7 bucks-a-day where I'm at (yeah, dude, I gotta get to gym dude, I've been payin' membership for years and I don't go dude, look at me. Yeah, it's all muscle under there too, dude. Oh yeah.).
When a nations philosophy's of life changes, watch-out - especially if you happen to be "one of those people". The peasants can never admit their philosophy of life was wrong (especially one blessed by their deity for over 30 years), so the ONLY logical answer can be "those people", and the nobility will be SURE to remind them about it VERY frequently.
With a little practice, even I could sound like a peasant and wait for the revolt to fade. Good luck y'all.
it covers the whole 20's, the development of debt and the market's rise, plus...to a small degree anyway, the battle to create consumption
advertising, for things one didn't know we didn't have, but evidently needed anyway :-)
including, the actual debate as to whether advertising was even moral
i'd just assumed, before reading this, that ads had always existed
the problem of abundance, the ability to produce as much as needed, and more, was already recognized almost 100 years ago in actual practice by the auto makers (henry ford), etc
i'm not an expert, so i'm sure there were thinkers prior to even the 1900's that recognized potential problems with a market based economy
that there have been problems in a market economy, there's no doubt, but i also have no problem sincerely believing a free market economy is something that could still work
like most things we (people) do, it'd probably take a lot of practice, patience, and flexibility
but without trust...well, we better save our money :-)
I agree.
My personal belief is that many some sectors of advertising are unethical and/or immoral.
BILLIONS are spent on advertising prescription medications that you can only get by seeing your doctor (cha-ching!).
The pharmaceutical companies pay off the doctors with catered lunches for staff and trips overseas, etc., and create a perceived regardless of real need for patients with incessant advertising; and then...medicare, CHIP, and health plan shells out the bucks.
The buck (bill) is, of course, is passed on to the responsible citizen by all. We then wonder why costs are so high for drugs and healthcare (duh).
Health Insurance commercials? Have you seen the BILLY MAYS health insurance commercia? We have LOST OUR MINDS.
Insurance commercials in general; shouldn't they be spending that money on...let me think...INSURING PEOPLE!?!?
Now they are advertising for identity theft protection. Excuse me? You want me to pay for your security measures? Should I be giving you $10 a month for your alarm system at the local branch billed to me directly as such? What a concept!
Of course, we as a SPECIES have been - and are being - trained and conditioned using behavioral research and science to CONSUME and to PAY.
We now accept PAYING to watch commercials. Many of the channels are COMMERCIAL channels that do nothing but sell CARP! (re-arrange the letters).
Sorry for the shouting, but it frustrates me so. Not only are we being turned into consumption zombies, we are being physically, psychologically, and spiritually selling ourselves down the river.
note to self...proofread...proofread...proofread...
Kevin, great charts, thank you, well timed.
Regards,
Eric
