Is The Inexplicable American Consumer Rebelling?

Friday, August 3rd, 2012

by Wolf Richter, www.testosteronepit.com

The strongest and toughest creatures out there that no one has been able to subdue yet, the inexplicable American consumers, are digging in their heels though the entire power structure has been pushing them relentlessly to buy more and more with money they don’t have, and borrow against future income they might never make, just so that GDP can edge up for another desperate quarter.

But it’s been tough. Despite the Fed’s insistence that inflation is “contained,” or its periodic fear-mongering about deflation, consumers have been hit with rising costs. Tuition has been ballooning—up 21% in California in 2011 alone! Student loan balances exceed $1 trillion. Some parents who are still paying for their own student loans are now watching their kids piling them up too [read.... Next: Bankruptcy for a whole Generation]. Healthcare expenses have seen a meteoric rise. And so have many other items that cut deep into the average budget.

Inflation is a special tax. It’s not that horrid if it’s small, if higher yields compensate investors and savers for it, and if higher wages compensate workers for it. But that hasn’t been the case. The Fed’s Zero Interest Rate Policy has seen to it that entire classes of investors and savers get their clocks cleaned; and wages haven’t kept up with inflation since the wage peak of 2000—with the very logical but brutal goal of bringing wages in line with those in China.

But for a welcome change, disposable income adjusted for inflation, reported earlier this week, actually rose 0.3% in June from May. So spending should have gone up as well. It didn’t. The inexplicable American consumer spent less in June than in May. And April. The decline was focused on goods, the lowest since January.

And instead of buying goods with the additional money they’d earned, they saved! What temerity! It wasn’t a one-month fluke. The savings rate reached 4.4%, after a fairly consistent uptrend from the November low of 3.2%. An unusual and courageous act of rebellion in face of the punishment the Fed inflicts on savers.

There’s other evidence: while new car and truck sales weren’t great in July at a seasonally adjusted annual rate of 14.09 million units—down from June’s 14.38 million and February’s 14.50 million, the high of the year—they concealed ominous undercurrents. Honda’s sales jumped 45.3% and Toyota’s 26.1% over July 2011. After the March 11 earthquake last year, supply-chain problems created shortages, which the flood in Thailand made worse. Brand-loyal buyers who couldn’t find the right model, option package, or color, rather than switching to other makes, delayed their purchase—thus creating pent-up demand. Now, supply problems have been resolved, and buyers are swarming all over their favorite dealerships. This specialized pent-up demand obscured a huge problem: GM’s sales dropped 6.4% and Ford’s 3.8%. The two leaders taking a simultaneous turn south! This doesn’t bode well for total vehicle sales once Honda’s and Toyota’s pent-up demand has been satisfied. Another act of rebellion by the inexplicable American consumer.

But the Commerce Department, in its press release on income and spending, had a convenient answer: blame “the economic turmoil in Europe.” For everything. And then it added what was practically a campaign ad: “Therefore, it is critical that we continue to push for policies that will grow our economy and support our middle class, such as abolishing the Fed (sorry, my screw-up) the remaining proposals in President Obama’s American Jobs Act.” And it goes on to praise Obama’s tax proposal. Priceless! Expunging the last vestiges of objectivity from our government agencies, such as the Department of Commerce whose Bureau of Economic Analysis had collected the numbers.

The cellphone in your pocket is NASA-smart, write Alex Daley and Doug Hornig. Yet it costs just a couple hundred dollars. So why is it that these rising technical capabilities are leading to drastically falling prices in tech products, but not in your medical bill? The answer may surprise you. Read…. “Why Your Health Care Is so Darn Expensive.”

Tags: American Consumers, Clocks, Disposable Income, Fear Mongering, Fluke, GDP, Healthcare Expenses, inflation, Insistence, Interest Rate Policy, Many Other Items, Meteoric Rise, Power Structure, Richter, Student Loan Balances, Student Loans, Temerity, Trillion, Wages, Zero Interest
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Update: “We have found a solution” – Futures Jump Apparently Due to Merkel Compromise

Friday, June 17th, 2011

Apparently, an agreement has been reached between France and Germany on how to go about stemming a ‘Lehman-like’ Greece crisis in the Eurozone.

From Trader Mark, Fund My Mutual Fund

I thought at first glance the “urgent buyer” had returned as the S&P 500 flirted with disaster (futures were walked up from +2 at 6 AM to +11 at 7 AM) but some of this action might be due to markets being happy with more kicking of the can down the road.  Apparently no bondholder should ever be allowed to take a loss in the too big to fail world – hence German demands that someone (anyone) be responsible for their investments, was too much to bear in bailout nation globe.

Per Bloomberg

Chancellor Angela Merkel signaled a willingness to compromise on German demands that bondholders shoulder a ‘substantial” share of a Greek rescue, saying she’ll work with the European Central Bank to resolve the crisis.   Merkel’s comments point to a reconciliation between Germany’s insistence that investors help bail out Greece with ECB warnings backed by France that any compulsory move risked triggering a default.

Peter Boockvar via The Big Picture

“We have found a solution,” said French President Sarkozy in reference to an agreement with German leader Merkel that will push for a voluntary debt rollover by existing Greek bondholders. Merkel backed off on the debt extension stance of her Finance Minister and said she wants to work with the ECB as the Germans still want “to have a participation of private creditors on a voluntary basis.”

While there is a Kum Ba Yah feeling in the euro region as Greek 2 yr yields are falling more than 200 bps on the Merkel/Sarkozy comments, it remains to be seen what enticements will have to be made to private bond holders to encourage them to stick with their Greek exposure when their current holdings mature.

Will they have to sign a pledge guaranteeing to buy more? What will the interest rates be that they will collect? Will the debt be secured or guaranteed by the EU? Either way, time will be bought and at this point, its not more time for Greece as they have no way of paying back this money, it’s time given to the European banking system to improve its capital ratios’s and time given to Spain to continue its budget cutting and deleveraging.

Sources:

http://www.fundmymutualfund.com/2011/06/futures-jump-apparently-due-to-merkel.html

http://www.ritholtz.com/blog/2011/06/we-have-found-a-solution/

Tags: Angela Merkel, Bailout, Bloomberg, Bond Holders, Bondholder, Bondholders, Bps, Chancellor Angela Merkel, Eurozone, Finance Minister, First Glance, French President Sarkozy, German Leader, Germans, Insistence, Lehman, Mutual Fund, Private Creditors, Substantial Share, Voluntary Basis
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