Thursday, July 8, 2010

Consumer Spending Contracts as the Great Recession Rolls on

Let's take a look at the consumer data we got from the Fed today:

"WASHINGTON (MarketWatch) -U.S. consumers shed some of their debt for the fourth month in a row in May, the Federal Reserve reported Thursday. Total seasonally adjusted consumer debt fell $9.15 billion, or a 4.5% annualized rate, in May to $2.42 trillion. Economists expected a decline. The series is very volatile. April consumer credit was revised sharply lower to a decline of $14.86 billion compared with the initial estimate of a gain of $1 billion. The decline in May was led by revolving credit-card debt, which fell $7.32 billion or 10.5%. This is the 20th straight monthly decline in credit card balances. Non-revolving debt such as auto loans, personal loans and student loans, fell $1.82 billion or 1.4%. Since the collapse of Lehman Brothers in September 2008, consumer credit has declined in 18 out of 20 months."

My Take:

Wow this is one incredible recovery we are seeing!(sarcasm off).  Folks, we are a consumer driven economy which means if we aren't spending then the economy isn't growing.

Without the countries credit card we would be back in a recession right now.  The only way we are avoiding a double dip is because The Fed is throwing money out of helicopters.

Of course, it's only a matter of time before the GDP numbers go negative again which will then officially give us our double dip.  This is inevitable because no country has a credit card that doesn't have a spending limit. 

We are rapidly reaching the point where our national credit card "maxes out" and starts getting declined. 

The consumer has already maxed out their own personal credit cards.  We have seen 20 straight months of declining credit card balances.  This is a highly deflationary signal.  It's also a good thing.  I believe people are beginning to get tired of being debt slaves.

Of course as this change in spending behaviour continues it's only going to increase the risk of a deflationary death spiral.  Americans are famous for spending like drunken sailors.  Nothing lasts forever though folks and times have changed as seen above.

Our consumer is now  either tapped out or is starting to hoard cash as the economy continues to fall off a cliff. 

How do the talking heads in Washington DC believe we are seeing economic growth when the consumer is in the process of contracting like this?

The spin machine in our capitol is now obviously in full gear.  Look at the credit revisions for April.  Credit was revised to minus 14.86 billion versus an expected gain of $1 billion.

How on earth can you be that far off on your initial estimates?  The answer in my book is you can't be unless you are trying to hide something.  I can't wait to see what the May revisions look like.

The Bottom Line

The whole economic recovery story is nothing but pure spin.  The numbers coming out of Washington are a complete joke and cannot be trusted until you see the revisions or are able to weed through their spin.

Take the unemployment numbers for example: 

How in the heck do you tell the people in this country that the unemployment rate dropped to 9.5% when 600,000 people lost their benefits and have essentially disappeared off of the labor statistics.

This spin process drives me nuts!

When are we going to start hearing the truth?  The economic reports have turned into nothing but a bag of lies.

The fact that the market rose on a day after reports like this is really amazing when you think about it.  I am not surprised because I was expecting a rally since we are still oversold.

One thing is clear:  The market has it's head in the sand.  It doesn't wanna hear the truth.  It doesn't want to trade off of fundamentals.  IMO it's morphed into a speculative casino that's gamed by day traders and the large trading desks on Wall St.

How anyone trusts their life savings in stocks is beyond me.  You have been slaughtered if you bought and held since 1999.  S&P now sits at 1067 after sitting at close to 1500 back in 2000 as seen below:

It doesn't take a math teacher to figure out the math in terms of performance over the last 10 years. 

You also don't need to be a technical chartist when you look at the chart above to see where the market is now headed following the furious rally that was triggered by the  "government spending bubble".

I plan on using this bounce to sell a few longs that I have owned for a long time because I think we are going to see a nasty plunge as the government teet begins to run dry. 

Let's get real here before I finish up:

The data above tells you that the private sector has not only not recovered...It's contracting and so is the real economy IMO.

The politicians in DC need to start stashing some money into their pockets while they can still borrow from the world so they have the ability to take care of the masses when this borrowing game ends.  The situation is rapidly becoming hopeless based on the most recent set of numbers that are coming out of Washington.

Let's hope the last bailout is for the people instead of Wall St.

Disclosure:  No new positions at the time of publication.



getyourselfconnected said...

spot on and the real hard data has always said the same thing: nothing is getting any better

I wrote tonight about the serious mash up to come before the elections. What a mess.

Jeff said...


Thanks bud!

I will check it out. I was over there earlier and u didn't have your post up yet.

Anonymous said...

What if the plan all along is to keep running the debts up (printing of Trillions) until a major traumatic event happens to which a reset by those still around left standing are left to then handle?

Allow me to put my "tin-foil" hat on for a quick minute if you will. Everyone who's been in the financial game long enough knows that cycles exist.

While doing further research on economic/monetary and kondratieff cycles, I often ran into tangents associated with the physics/mathematical principles found in the most gargantuan of cycles, the cosmic cycles.

So like any other engineer would do (although I've spent the last 7 years in Finance, I'm actually a degreed Electrical Engineer from a top 10 engineering university), I researched further.

Here's where the "tin-foil" comes in handy. Upon researching the cosmic cycles further, I came across the following site:

What initially struck me during the intro movie (and yes, watching it with the volume turned up does make it pretty exciting I have to add), was the oscillations of the solar system along an ecliptic plane of the Milky Way galaxy and within the next few years, our solar system is set to cross that plane again. Sure we have the added hype of the 2012 / hollywood scenario to contend with, but as one who thinks like an engineer I have to ask myself, "What if?"

So what if TPTB who have spent a large amount of time and resources dumbing the general public down with reality tv, gaming consoles, turning us into debt enslaved consumers, supressing info on a need to know basis, etc. know the SWHTF?

What's the point in fixing the budget when everything will reset back to zero anyway under the most gargantuan of all cycles? The "mother" of all cycles if you will?

After all, quoting our favorite banker JP Morgan who once stated, "Millionaires don't use astrology, billionaires do."

FA in CA

Jeff said...


Food for thought there.

I have read about some analysts that use astrology when coming up with their investment thesis.

What was thought to be tinfoil in the past has ended up actually happening.

I think this is a grand supercycle that is coming to an end.

Bob Prechter talks a lot about super cycles(using Elliot wave versus astrology).

He believes we end up back at DOW 1000 where there is significent resistance.

The whole cheap money cycle got stared back then as we continually dropped rates from the 15% levels we saw back then.

The problem is now rates will only go up because they can't really go any lower.

This means asset you purchase will drop in value (including houses) because rates can only go in 1 direction which is up.

The asset you bought then goes down in value. Once the sheeple get this demand is going to fall off a cliff.

It already has in housing. We are just getting started though.

Crazy times for sure!

Anonymous said...

"Jeff said...Bob Prechter talks a lot about super cycles(using Elliot wave versus astrology).

He believes we end up back at DOW 1000 where there is significent resistance."

Bob Prechter is an idiot permabear. Here he is 21 YEARS ago discussing whether the "depression" starts in 1991 or 1992-93

Even with the big crash(es) weve had in 2002 & 2008, we are still up several hundred percent over the time when Bobby said to go all cash. Even worse, $100,000 invested with Prechter in 1985 would be worth $1,700 today.

This elliot wave stuff is all fine and good, but where you can get the timing wrong by 20+ years (about 1/2 your investing life for us humans) its worthless.

Jeff said...


Never said I was a fan of Bob's although he is getting more air time recently on the fiancial networks. Just commenting on the super cycle theory.

He has been way off. The one thing I have noticed is most of the analysts have been very wrong at different times over the last 3 years.

Look at Bill Miller who doubled down on fannie and freddie before they almost went to 0's. He was supposed to be a market genious.

He did well though in 2009. This market has humbled everyone at some point including myself.

CT-Hilltopper said...

Next bailouts are for the munis and the states.

It's gotten to the point where the Fed can't afford to NOT bail them out, because we are at the end of our rope.

No matter what we do, we are screwed, really, so at this point...six of one, or a half dozen of the other. Pick your economic death from door number one, or from whats behind door number two.

I can't believe how calmly and dispassionately I can sit here and watch them screw up my country. Of course it's because all of my rage and anger was gone through last year. Along with the bargaining. Now I have reached acceptance, and with acceptance comes peace. I can watch them do anything now, realize why and how they do it, make my moves to counter them, and move on.

Jeff said...



I have reached the same emotional state.

I am thankfully employed and I consider myself to be very fortunate because I know many out there are struggling.

I still hold out hope that we will do the right thing at the last possible second to avoid blowing ourselves up financially.

Perhaps its a dream but I will keep preaching the financial gospel hoping that I can positively effect someone's financial future.

If I can get just a few people to pay down debt or to sell some stocks and diversify into some fixed income in order to protect themselves then I will consider my blog to be a success.

Angier said...

"While doing further research on economic/monetary and kondratieff cycles, I often ran into tangents associated with the physics/mathematical principles found in the most gargantuan of cycles, the cosmic cycles."

Tin foil hat indeed! No offense, but if you are serious about that you should maybe get professional help.

My Brother is a researcher at Loyola - he says 17% of all the wave theorists are likely suffering from some sort of mental illness. They all speak of whats going to happen in apocalyptic terms, and always state it as being imminent in nature.

The worst of these guys are the ones we see on the streetcorner, day after day with a sign that says "the end is near". However there are even those who have professional occupations & careers like this fellow:

After running through the Elliott Wave doom he sees, its very interesting to click on his link about having an "apocalyptic vision".

He tells of writing to Prechter about how during the 1991 gulf war, he was scared shitless, dropped out of school, and went to the caribbean as a relative "safe haven" from the upcoming destruction of mankind.

Best part is after he realizes the gulf war was not the end of the world, he goes back to school and is diagnosed as suffering from bipolar disorder (and hallucinations). However, the irony is when he says this:

"Recognizing that there was nothing wrong with my mental faculties and, in reality, what I experienced was a supernatural revelation, I continued my examination of long-wave patterns in human history and realized that the world was projecting on to me personally what was true of the species I was born into. Man is suffering from a bipolar disorder, not I."

Thus, this poor fellow who likely has a wife & family and a normal life, has been suffering for 18+ years thinking that doom is just around the corner.

Prechter & his ilk feed of this guy's illness, since their disorders cause them to seek the comfort of knowing that things go in predictable "waves".

I dont know if you are like this, but just recognize the way this comes off. If it does in anyway describe you, seek professional help.

Jeff said...


Did your brother look at the bipolar pumping bulls?

Jim Cramer is as bipolar as anyone. Do you recall his fab 8 in 2000 that all ended up nearly bankrupt?

My point is the craziness goes both ways.

All I know is I have spoken to people way way way up the Wall St food chain and you wouldn't sleep for a week if you heard their take on the economy.

Wall St really over did it this go around via lending standards. Things went too far and I don't know if we can recover.

Prechter's risk of a financial collapse is not tinfoil according to the pros.

Forget Elliot wave theory when it comes to predictions. According to my sources it will simply be the math.

Anonymous said...

Angier says,

"My Brother is a researcher at Loyola - he says 17% of all the wave theorists are likely suffering from some sort of mental illness. They all speak of whats going to happen in apocalyptic terms, and always state it as being imminent in nature."

Well Angier, I guess I should consider myself lucky I'm part of the 83% that doesn't have the mental illness. I suppose your brother's research would classify me as having a mental illness just because I choose to have 3 months supply of emergency food on hand as well. Please.


Nobody here, especially not I, is stating some kind of Mad Max outcome will happen overnight. I am simply pointing out other tangents which nobody has answers to that can affect the outcome direction. Like anyone with an ounce of strategical mindset, you'd be a fool not to consider the unknown. Do yourself a favor and read up on some Sun Tzu. You might pick up a thing or 2.

What's considered "apocalyptic" to your brother and his loyal band of researchers, is probably a walk in the park for me so please check your generalizations at the door.

No offense, but I think if anyone has mental issues, it's the persons that obsess on researching, by filtering through all the forums and blogs, the attributes of those who have "apocalyptic" visions.

Belief arises when you don't KNOW something, and assert an answer where there isn't one. Answers are found, not made up.

I am humble enough to say when I don't know something and at this time I can also say I don't have an answer but just because I don't have the answers doesn't mean I should dismiss the unknowns.

FA in CA

Jeff said...

Back at it tomorrow folks.

Took some vacation time.