If investors think that all this saving will eventually lead to mounds of dry powder to be invested in stocks, then now could be a fine time to invest in stocks. But if consumers stop borrowing and keep saving, it could be years before consumer spending increases lead to economic growth…

So all that fiscal prudence could be bad for stocks. But at least people will start relying on themselves to prepare for their retirement. And that’s a good thing in the long-term.
-“Fiscal prudence is great for consumers. But is it bad for stocks?”

Now, the savings rate is another economic datapoint, and as such not one I highly pay attention to beyond (maybe) glancing at what it is. Is a negative savings rate bad for the country? It’s certainly unsustainable, and if you have companies levering up to build out capacity based on the belief that such a level of spending is normal, you’re in for trouble when the cycle turns. That, in my opinion, is an under-rated cause of some of the non-financial pain we’re seeing now.

People looking for a trade like to extrapolate things like the savings rate to consumer discretionary stocks, which seem like a natural link. But that overlooks that most stocks in the sector – say, apparel retail and restaurants – are just generally bad groups to own. The economics are unfavorable across the board, and until you have a real rationalization of store base counts, I don’t see how the operating leverage really starts to work in favor of the companies. Of course, with commercial real estate supposedly the next great shakeout due to overleveraging and overbuilding, how this will get accomplished in a timely fashion if mall owners are looking to make deals is beyond me.