Tuesday, July 28, 2009

Consumer Halcyon Days Are Over

I keep hearing that happy days are here again.

Even if we are out of the recession as some point in the future, we have most market participants/pundits expecting business as usual. Off to the races. Here comes the consumer.

The market is trading like the consumer never left. It's trading like GDP growth is going to come in around 5% for next quarter. We are going to have some positive views on GDP. A positive number is coming, but is that sustainable?


The typical self-sustaining economic recovery of the past will not be repeated in the immediate future for the following reasons:

-The consumer entered the current down cycle exposed and levered to the hilt, and net worth's have been damaged and will need to be repaired through higher savings and lower consumption.

-The credit aftershock will continue to haunt the economy. Credit creation is not there anymore.

-Cost cuts are a corporate lifeline and so is fiscal stimulus, but both have a defined and limited life cycle, How much more can corporations cut? If so...that has a direct effect on consumer spending.

-While some have speculated that the housing market has stabilized its recovery will be muted, and there are few growth drivers to replace the important role taken by the real estate markets and GSE's in the prior upturn.

-As the FED/Treasury has jumped started Wall Street. Will that bleed onto Main Street? This experiment and its effects on consumers is still uncertain.

-Commercial real estate has only begun to enter a cyclical downturn.

-Credit card delinquencies are staggering.

- HELOC exposure is the next shoe to drop.

-Credit Limits being diced and sliced...Clyde Frazier style.


-Taxes are going higher baby! Local budgets need to stabilize and deficits need to be funded by you know who.

-As the stock market and phantom economy rallies. What Happens to Crude Oil? Get ready for pain at the pump. This is an added tax on consumers.


  1. With all of the negative outlooks listed above, what could be the possible reason for the unexpected increase in demand for Durable goods?


  2. Well Durable Goods Orders sank further this morning. The recovery in the industrial complex has been uneven at best. Remember Durable Goods is mostly spending by business such as aircraft deliveries, steel, mining, etc. Those industries per the US Steel comments are still seeing sluggish demand growth. We are headed for a double dip recession. When we get it, watch out. The markets will fall as the program trading has lifted shares, these particular HFT have not been tested in down markets.