Bloomberg: Turmoil May Make Americans Savers; Worsening Nasty Recession
By:
TraderMark Wednesday, October 22, 2008 10:55 AM
Following up on our post yesterday in regards to the credit card issue - this is
a very related story from Bloomberg. As I say, this won't be a "choice", it will be a necessity. This is a key point to understand not just because its "economic stuff" but because if you are making investing decisions over the next 2-3 years you have to look through the punditry who has been screaming for well over 9 months now to buy "consumer discretionary" because "the consumer will be back soon". They continue to use the wrong model - the early 90s and early 00s recessions - those are corporate led recessions. We're going back to the early 70s and early 80s models - consumer led recessions. We've warned about this since blog inception - it is only now dawning on even the financial folks - not to mention those folks outside the financial sphere who are completely missing this huge shift.
- The U.S. may be on its way to becoming a nation of savers, whether Americans like it or not. With home and stock prices declining and credit hard to come by, consumers who have fallen out of the savings habit are being forced to curb borrowing and rein in spending. (key word, forced)
- That is bad news for companies catering to them, which will have to retrench as well. Detroit automakers may need to slash costs and merge as Americans hold onto their cars longer. Shopping malls might be forced to shut as retail traffic trails off. Hotels may have to shelve expansion plans as vacationers become stingier with their dollars.
- The big concern is that households, spooked by the turmoil in financial markets, will cut back rapidly and sharply, plunging companies into bankruptcy and deepening a recession that many economists say has already begun.
- ``We are going through a quantum downward shift in consumer spending,'' says Allen Sinai, chief economist at Decision Economics in New York.
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