Tuesday, September 8, 2009

Americans are Running out of Options

I wanted to throw a quick post up. Things are super busy so I don't have a lot of time tonight.

I did want to say a few things about the horrific consumer credit numbers today:

"By Greg Robb WASHINGTON (MarketWatch)-

U.S. consumers reduced their credit burden by a record amount in July, the Federal Reserve reported Tuesday. Total seasonally adjusted consumer debt fell $21.55 billion, or at a 10.4% annual rate, in July to $2.47 trillion. This is the sixth straight monthly drop in consumer credit.

Consumers have retrenched since the financial crisis hit the economy in full force last September. Credit has fallen in every month since then except January.

Economists surveyed by Market Watch expected consumer credit to decline by $4.3 billion. This is the longest consecutive string of declines in credit since the second half of 1991. In the subcategories, credit-card debt fell $6.11 billion, or 8.5%, to $905.58 billion. This is the record 11th straight monthly drop in credit card debt. Non-revolving credit, such as auto loans, personal loans and student loans fell a record $15.44 billion or 11.7% to $1.57 trillion"

My Take:

Translation? The consumer is tapped out on credit and has no ability to borrow anymore. You gotta love our brilliant Wall St economists. they were only off 500% on their forecast of a $4 billion in credit availability versus the $21 billion reported.

Where on earth is this "recovery" going to come from when we have consumers that can't consume in an economy that is 70% driven by consumer spending?

How is J6P going to buy those next generation I-phones when their credit card is tapped out?

How are homeowners that have been living off of their credit cards in order to pay the mortgage going to survive and continue to make their payments as their availability to credit evaporates?

The way the market is acting right now is pure lunacy IMO. The fact that stocks continue to rise in the face of such news is unbelievable. The dollar was down hard again as the world continues to rapidly lose confidence in our ability to pay back our debts.

The risk of the US bankruptcy rises each day as we continue to write checks for money we don't have.

I mean look at the dollar over the past few days. Can the investment world be anymore clear in terms of sending a message about what they think about our fiscal strength as a result of our insane deficit spending? :

My Take:

A strong currency is the symbol of a strong economy. We are coming dangerously close to breaking levels in the dollar that could could trigger another deeper sell off.

We cannot handle inflation via a collapsing currency right now people. Wages are dropping and unemployment is through the roof! You will start to see catastrophic consequences here in the US if we continue down this path.

We already have over 35 million on food stamps in this nation. The dollar MUST be protected shortly or we are in deep trouble.

And if we decide to continue down this path?

Social chaos will become a serious threat because no one will be able to afford to live in this country. Our bloated mortgage payments, rising oil/commodity prices(oil was up over $3 today) thanks to a crashing dollar , and shrinking credit card limits are forcing many Americans to run out of options when it comes to putting food on the table.

I am seriously concerned about the dollar and Obama's obsession around deficit spending.

Its time for America to stop the bailouts and start paying off some bills!


getyourselfconnected said...

why pay when you can refinance at all time low rates! The US is a serial refinancer!

Jeff said...


Until the bond market says: Enough.

Obama is getting close to crossing that line.

What a whacky market..

Peter said...

I hear that things are getting much better, that's what the media keeps telling me. Did you see the DOW was up again? That is good economic news, the other stuff is just silly numbers.

Jeff said...


I know.

I'll be honest. I have been having major writers block.

There is simply nothing logical to this market.

There is nothing to analyze. There is no way to analyze rallies based on nothing but hope.

The trend is up until sentiment changes.

Everyone I read sound spretty clueless as to how far we have bounced. even the bulls seem pretty shocked.

I just shake my head as I sit here and watch SRS crater to $11 as commercial real estate collapses.

Its like the market is doing the exact opposite of what it should be doing.

I just have to sit here and laugh as I watch stocks metals and bonds go up up and away.

Herb said...

Only 500%??

Hahahahaha, those wacky economist!

Jeff said...

Rally on Herb Rally on!

Wall St is only hiring bullish recovery economists these days!

ph4nt0m said...

Factor of 5 = 400% not 500%

Herb said...

Seriously, have any of the economist (I don't know exactly what you would call Greenspan or Bernanke) been any where close to forecasting this housing bubble or the magnitude?

Schiller seems like he was close, but even he didn't foresee the total collapse of Lehman Bros, AIG, GM, etc.

Why does anyone bother to hire economist when they can just come to this blog and post a question and get an answer much closer to reality?

Jeff said...


I think its because they work for firms that have a huge self interest in seeing stocks move higher.

There are some good ones like Rosenberg but they are few and far between.

I like Shiller too. He talks a lot about the pschology behind bubbles. I think this could be applied to this most recent surge in equities.

Greed has taken over most people's rationelle when it comes to investing. They will get burned once again like they always do.

Everyone is trying to play the "recovery" that they are convinced is coming like it always have since the early '80's.

The problem is it IS different this time. We have created huge craters that will take years if not decades to heal. We have spent 11 trillion dollars that we don't have.

We will be paying huge taxes for generations. Once this reality sets in stocks will roll over once again.

What shocks me is how much risk investors are willing to take with their nest egg.

I still know so many people that are "all in" when it comes to their equity exposure.

I don't know how they sleep at night given the volatility we have seen in the past 10 years.

to each his own i guess.

Anonymous said...

Just remember how long it takes for reality to set in. I find myself thinking back to the tech bubble when for years the tech stocks kept climbing and everyone knew it was all hot air but yet no one wanted to be left out so they bought which pushed them even higher until the big players pulled out and then the bagholders threw in the towel. I think that is what is going on today, we all know that everything is being artificially propped up by the government and the market keeps trading higher so more people are going to move in because they believe the market is a true barometer of the true economy. I would be a buyer when I know the government is out of this and starts shoring up our country's balance sheet and co.s and the econ are improving on thier own merits.

flipdippy said...


I disagree about the tech bubble. There was an idea underpinning it, which was the cost of technology had come down and advanced sufficiently it would transform every industry while becoming one in its own right.

If you look at stock valuations and fallout from the bubble bursting, then yes, it was a colossal bubble. But it did change everything about our world and our economy and continues to do so. And during that time, there was record low unemployment and for a lot of people, wages and productivity were up.

This bubble (if we call it that) has no fundamental drivers. The markets are frothing while the economy is rotting. The fundamentals and the markets are literally running in opposite directons.

For this reason, many like myself are left scratching our heads.

flipdippy said...

I disagree with Paul Krugman's solution, but he does a fair enough job explaining how every economist 'missed it' in the NYT over the weekend:


Herb said...

I think Krugman's whole thesis boils down to there being no single framework that can model the economy and silly adherence to bad models got us into this mess.

On the other hand, I can not model or explain how fish goes rotten, but given a piece of rotten fish, I can very quickly determine the state it is in.

When I saw a show on HGTV about morons flipping a house in California and finding someone to pay $750k for an old 1000 ft^2 house with granite counter tops I was able to quickly determine that something smelled very very wrong.

Jeff said...

Great thoughts all

This casino keeps rising and the dollar keeps falling.

At some point this trend will reverse. The dollar can olny drop so much before the markets shits itself(oops did I really say that?) :)