Forgive us a short rant this evening. This country is sick. When the three main engines of growth - consumer spending, real estate, and financial services - are broken, it’s just not possible to make any economic progress. And for just a moment, let’s think about how pathetic those key sectors really are.
Cogent analysis of our per capita consumption requires some historical knowledge, since no contemporary people compares with our particular level of decadence. At least the Romans had some style: we borrow profligately to buy more junk than we can keep track of, and then elect corrupt politicians to ensure those products will be as unsafe as possible. We satisfy ourselves with plastic toys and plastic food and live at a standard so high that, when the rest of the world follows suit, the environment will collapse. So part of the problem is that our economic health depends so much on discretionary consumption in the first place. The other part of the problem is that “consume” is too delicate a word for what we do: we gorge.
Our total lack of restraint is evident in our homes as well, which are too large, too expensive, and too ugly. The voluntary plywood prisons filling every suburb are justified only for believers in the mantra that in a capitalist society, no consumer choice can ever be a bad one. We’ve taken on more mortgage debt than we could possibly ever service, which can only be the result of some combination of financial illiteracy and raw greed.
Finally, the fact that financial services ever became such a core element of our economy is itself a testament to our aimlessness. Finance is a tool for greasing the wheels of an economy, and when it serves its proper role, finance can be a very good thing. But it can (and should) never be the economy itself; it is fundamentally derivative on the labor of real people doing real work. By extension, an economy that gives pride of place to what should be a tertiary concern is an economy that is winding down and running out of ideas. Just as the ascendancy of the lawyers is the death knell of an industry (cf. the dying spams of the major record labels and the RIAA), so the dominance of financial services signals an economy that has become tired and spent. Perhaps the common man’s lament that the United States “doesn’t make anything anymore” deserves more respect than it often gets.
Debates about the timing of this recession are beside the point. While the United States still boasts the strongest and most diversified economy in the world, the sources of our prosperity have also become the causes of our decline. These are social and political problems as much as they are economic ones. We must find new engines of growth.
Reversal Readings
Short-term oversold readings abound, as you might guess, but this is definitely one of those cases where you shouldn’t try to be a hero. Market internals were pretty awful into the close today.
DIA - 5.69
SPY - 3.09
IWM - 1.57
QQQQ - 0.93
XLF - 3.93
XLE - Energy - 57.39
EEM - Emerging Mkts - 1.62
FXI - China - 2.81
XLV - Healthcare - 0.82
We could go on: basically, the only things not oversold are gold, energy, and commodities.
