The U.S. Consumer is like…..

Posted on 08/12/2011


…..a petulant little child, and has been for years.

We want our I pads, McDonalds, and 2,500 satellite channels rife with “reality” programming.  For the past 10-15 years most, if not all of our trite “needs”  were quickly met with little consideration paid to potential consequences (addict behavior enabled by MANY willing participants).

One could argue that it’s just been the market finding creative ways to meet demand, but I would contend that the “invisible hand” has been all TOO VISIBLE and it’s carrying a pencil with a really big eraser that’s just about worn out.

Circa 1999:

Too busy (lazy) to get to the grocery, pet, or toy store? No sweat, we’ve got a .com for that…..Peapod, Webvan,….. you’re covered and Wall Street will shower us with the magic money and provide the match to ignite the tinder box. May I remind you that the folks had a couple Super Bowl commercials and were part of the Macy’s Thanksgiving Day parade. Yup.

Circa 2006:

You like that 4,500 square foot, 5 bedroom, 7 bathroom with 3 car garage (gotta have room for the Hummer) and a pool? We don’t blame you, plus it’s ONLY 50 miles from a major city and it’s a steal at $725,000! Now…..can  you come here and fog up this mirror and “promise” us you have a job? Wonderful. Our finance department (engineers) have come up with an AMAZING new product just for you – it’s called a NegAm loan and it’s PERFECT! You can PAY WHAT YOU WANT and we’ll just tack on the difference at the end. That way you can still afford to hop in the Hummer and get dinner at the Applebees (2 for $20 – cooking is so 1993) where the waitress just bought a cute 4 bedroom down the street. Plus, they only make so much real estate and just look at what prices have done lately!

Alright, so perhaps my reputation for sarcasm is deserved, but you get the point.

To be fair, there is plenty of blame to go around. The American consumer has pleaded their case for “more (cheese)cake and we’ll eat it too”. The game of Global Charades has been readily financed by (Greenspan/Bernanke and Co.) cheap money. There was a reality (liquidity) check nearly 3 years ago and by many accounts there appears to be a similar, Eurostyle (which makes it inherently more sexy and less scary….right?) “re-pricing” of risk going on over the past two weeks.

I don’t think this ends well.

In the short term, we may see another Central bankers are willing to do whatever it takes style rally.

The lynchpin to this whole “game” is CONFIDENCE. Will consumer confidence reemerge (remember they still make up between 60-80% of the economic engine)? Will inflating asset prices give you a sense of well being and motivate you to buy an(other) I pad, or flatscreen tele, or (fingers crossed) a NEW HOME?

Ask yourself that……and then consider that the unemployment rate is over 9% (according to government stats – lies, damn lies, and statistics). Over the next three months between 3-4 million Americans will have exhausted their unemployment benefits (translation….they have been out of work for just under TWO YEARS). Food stamp use is at an all-time high and the proverbial nail in the coffin came this morning when (drumroll please) consumer confidence (UMich) came in lower than we’ve seen since May of 1980. You read that correctly. The UMich number is LOWER than it was at any point in late 2008 or early 2009 (when the S&Ps traded 667).

Disclaimer: I’m no longer inclined to pessimism (I haven’t had a drink in nearly 4 1/2 years which helps) and I try not to convolute my thinking, but perhaps I’m missing something.

Consumers are the fuel for economic growth, so their sense of well being is critical.

Advance Q2 GDP numbers came in at 1.3%. The June trade deficit came in OVER $53 billion (on expectations of ~$48 billion). That’s NOT going to help when the Q2 GDP gets revised.

Keynesian approaches call for government spending in stop-gap situations and we’ve done that in fits and spurts over the past decade, and in particular over the past 3 years. The plan is to now CURTAIL government spending (see also: Great Britain 2010) to inspire global confidence and we’ll see our economy return like Willis Reed in Game 7 of the 1970 NBA Finals.

This looks like an unwelcome recipe for Double Dip.

You will get NO Mint Chocolate, you will get NO Cookies and Cream, you will get NO Cookie Dough.

Enjoy your Brussel sprouts because there’s a huge pile of mushy cooked carrots behind them.

One last thing to brighten your weekend…..if you’re a technical type, the S&P just triggered a “death cross” with the 50 day Simple Moving Average (headed lower) crossing the 200 day Simple Moving Average (also headed lower). Full disclosure, this has happened before and not lived up to it’s name, but they don’t call it the Death Cross for no reason. Be careful out there. Liquidity issues are SCARY even if they emanate 3,500 miles from New York (clue: wine, cheese, long vacations, and that Cousteau guy who made some incredible documentaries) and Willis Reed isn’t on any ballot in 2012 (but his teammate was in 2000).

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