Consumer Continues to Surprise and Spit in the Face of Common Sense
In a previous post I had questioned whether or not there possibly can be a consumer spending recession. I argue that no matter what economic situation occurs, consumers will tap any credit line they can and keep spending. They simply do not know how to do anything else. Today we see it happen again:
Consumer Spending Surges in November
Friday December 21, 5:20 pm ET By Martin Crutsinger, AP Economics Writer
Consumer Spending Surges in November, Reducing Fears of Imminent Recession.
WASHINGTON (AP) -- Consumers put aside worries about slumping home sales and soaring gasoline prices and headed to the malls in November, pushing spending up by the largest amount in 3 1/2 years. The better-than-expected surge lessened fears of an imminent recession.
The Commerce Department reported Friday that consumer spending shot up 1.1 percent last month, nearly triple the October gain. It was the biggest one-month jump since a 1.2 percent rise in May 2004 and was significantly higher than the 0.7 percent gain analysts had expected.
Incomes were also up last month, but the 0.4 percent increase was far below the rise in spending. Consequently, the personal savings rate dipped back into negative territory as households spent savings and borrowed to finance November purchases.
Analysts attributed part of the spending to heavy discounting and longer store hours at the start of the holiday season by retailers worried that the all-important Christmas shopping period may not be as strong this year given the factors weighing on the economy.
Still, the strong November relieved some concerns that a recession might be looming.
"Consumers did their part in November, but we will see whether they are up to it for the full Christmas season and into next year," said Mark Zandi, chief economist at Moody's Economy.com. "Their financial fire power is fading due to the weaker job market, surging gasoline and food prices which cut into their purchasing power and the evaporating housing market."
Another article that captures the sickness that is the US consumer very well. House prices cratering? Gasoline prices high? Food cost more? Heating oil through the roof? Whuppity Doo. The consumer is far too sophisticated to allow such things to alter their spending habits.
I believe there has not been a drop off in spending because for the most part, people do not actually pay for anything they are buying. What do I mean? Glad you asked. In the past things like gas, heating oil, food, and most other things were paid for in cash. When prices went up, you scaled back purchases. Now all items are paid for by credit card. As long as the monthly bill bomb is not too big, most folks have no idea the kind of debt they are collecting. This is a key point. A big payoff of the debt has been through home price equity extraction. That game should be over now. All that's left as a capital reserve may be 401k plans. How far can that go? My guess is about mid year 2008.
I absolutely love the line from Mak Zandi:
"Consumers did their part in November, but we will see whether they are up to it for the full Christmas season and into next year"
That is how the mindless spending masses are viewed on wall street folks. The consumer must do their part and buy tons of crap they don't need to keep America and Wall Street strong. Common sense tells us that spending should be going down. Reality tells us we are stupid. History will judge who is right over the long haul.
Hurry Nurse, the Patient Needs a Cash Infusion!
I was home today and watched some CNBC. The commentators were giddy about all the cash infusions from all over the world for the US banks. It was pure comedy as usual. Today's big news was the Merrill Lynch cash prize win from Singapore. In the past month here are some of the "investments" from helpful foreign countries:
- Citigroup - Abu Dhabi in for 7.5 Billion
- UBS AG - Government of Singapore Investment Corp. invested $9.75 billion
- Merrill - 5 Billion more from Singapore
- Morgan Stanley - China Investment Corp. paid $5 billion
As fast as the banks can lose it, other countries replace it! This is the coolest thing ever! If I was a bank like Bank of America I would lose something like 100 Billion and then see how much I could get for that. I would think Russia or China would be good for at least 80-90 Billion.
Seriously, these events cannot be viewed as positive. When a person loses over 20% of their blood volume, they require a blood transfusion. The term infusion also applies. The key point here is that bleeding must be stopped for a blood infusion to have any effect. If the source of the bleeding is not stopped, the new blood is lost as well. Eventually the bloodbank runs out of blood and the patient dies. Either the investment bankers in those countries know the bleeding has been stopped, or something else is pushing them to flush money down the toilet.
It seems to me that foreign investors are pretty quick to jump in here. With the paltry 20 billion dollar auctions being done by the FED (compare with the 500 Billion the ECB dumped) one cannot but help thinking there is something going on here. It would not shock me to learn in the next week, year, or 5 years from now in Bernanke's new book that the foreign capital flooding the markets is in fact guaranteed by the US Federal Reserve. It both fits and makes sense. maybe I am just a conspiracy nut, but I cannot help but think there may be something to this idea. The FED can sidestep the calls of "moral hazard" and "bailing out lenders" by using the foreign countries as money fronts. We shall see. The new poll asks this question, so please vote!
Super SIV Plan Now Dead; Who Needs it Anyway?
Word came today that the Super SIV fund that was backed by the treasury and several large banks will not get off the ground. In light of the vast oceans of cash that banks have access to through the FED and through foreign countries this makes sense. There is no reason to disclose a banks holding to other banks and possibly the FED now that any collateral can be used at the FED discount window and cash is rolling in from overseas. The banks will be able to delay price discovery for some time if they are able to keep up cash infusions. All the bank deals announced lately and now the death of the Superfund are not independant of each other. It all fits together. It also makes me sick.
Friday night rock blogging time!
I will say it one more time, when I include music here I make no statement about any beliefs a band may have nor commentary on their behavior. I just love rocking tunes!
Rage Against the Machine with their cover of "the Ghost of Tom Joad". There are few bands that can ever match the sheer energy of Rage in a live show, I have seen them twice and they were really something!
A band I really like is Radiohead. "Karma Police" is one of my favorites:
Two tunes from Iron Maiden. First is "Hallowed be thy Name". Lead singer Bruce Dickinson simply has no match when it comes to heavy metal vocals. Both the beginning and end showcase his rare talents:
Not convinced? Check Bruce's solo album song "Tears of the Dragon" for more great vocals:
Have a good night.