Barrons Cover Story Spending

>   
>   (email exchange)
>   
>   On Sun, Nov 21, 2010 at 11:50 PM, Bob wrote:
>   
>   Don’t underestimate the amount people will possibly spend this holiday season.
>   
>   90 Percent have jobs, and they are NOT as worried as they were in 2008 and 2009
>   about Losing their jobs. This can create a good environment for stocks going
>   forward.
>   
>   There is a lot of corporate and consumer cash on the sidelines and they could
>   be feeling a bit better about spending it now and going forward.
>   

Moreover, household financial obligations—defined as debt and lease payments, rent, home insurance and property taxes—have fallen to 17% of disposable income, down from an all-time high of 18.9% in the third quarter of 2007 and below the 30-year average of 17.2%, notes James Paulsen, chief investment strategist at Wells Capital Management.

Yes, this is the direct result of the large federal budger deficit.

Reflected in those numbers is a sharp increase in the personal savings rate, which rose to a peak of 8.2% in May 2009 from as little as 0.8% in April 2005. The savings rate—the percentage of personal income that isn’t consumed—since has fallen back to 5.3%.

Yes, this is the direct result of the large federal budger deficit.

The savings rate typically rises during recessions and falls amid recoveries, as the public grows more confident about the future. Economists such as Paulsen expect that the savings rate will plateau around current levels.

Yes, this is the direct result of the large federal budger deficit.

A Better Balance Sheet

Household debt has fallen by about $1 trillion, to $11.5 trillion, since the fourth quarter of 2008…

Yes, this is the direct result of the large federal budger deficit.

If the Bush tax cuts aren’t extended for those making at least $250,000 a year, some $65 billion will start coming out of their paychecks and pockets starting Jan. 1. The potential hit to consumer spending could be significant, because although this group represents only 18% of U.S. taxpayers, they account for 35% of spending, notes ConsumerEdge Research.

Yes, reducing the federal deficit is contractionary.

MANY AMERICAN CONSUMERS still have too much debt, and potential threats such as renewed inflation, rising interest rates and higher taxes could prove formidable obstacles to a recovery in spending. But John Q. Wal-Mart and Jane Q. Saks have worked hard in the past two years—certainly harder than their Uncle Sam—to mend their financial health. They could be in much better shape than you think.

Yes, this is the direct result of the large federal budger deficit.

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12 Responses to Barrons Cover Story Spending

  1. Winslow R. says:

    More rain on the parade…..

    Fannie Mae is getting tougher on debt-to-income ratios, or the amount of a borrower’s gross monthly income that goes toward paying off all debts. The maximum ratio for those seeking a conventional mortgage will drop to 45 percent from 55 percent under the new guidelines.

    But perhaps the toughest news from Fannie Mae concerns borrowers who have gone through foreclosure. They will be excluded from obtaining a Fannie-backed loan for seven years, up from four.

    http://www.nytimes.com/2010/11/21/realestate/21mort.html

    Reply

    Mr. E Reply:

    I don’t think real estate will cause much additional real economy misery.

    Why?

    1. Nobody left to layoff in real estate – so no employment shock
    2. Everybody knows just to walk away from a losing mortgage now – let the bank take it. Heck, I’ve had two people call me in the last month for advice on that very question – completely unprompted.

    If people are going to walk away from bad mortgages and nobody gets laid off, the only damage is to the banks. We can save banking even if we let banks fail….

    So I don’t think real estate market value reductions will have much if any impact on the real economy. I could be wrong though…

    Reply

  2. Tom Hickey says:

    Enjoy it while it lasts. Strong headwinds developing.

    http://www.nytimes.com/2010/11/22/opinion/22krugman.html

    Reply

    roger erickson Reply:

    Krugman, as an unabashed partisan, isn’t helping mattes either. We desperately need less politics, less ideology, and more operations.

    Reply

  3. pebird says:

    I wonder why (this is somewhat tongue-in-cheek) the Democrats do not offer a LARGER tax break to those under the $250K threshold via an income tax withholding holiday to be “paid” for with expiration of the over $250K tax rates (or a readjustment of the tax rates to include millionaire rates, etc.).

    The complete abandonment of anything close to progressive policies (which aren’t that hard to design) that could easily be sold to in the US is astounding.

    Reply

    beowulf Reply:

    Yeah, the concept of a “counterpunch” is completely foreign to Democrats. Instead of countering the Republican demand for extending all tax breaks with a tax holiday, universal tax credit or some other progressive proposal. They’ve started their habitual pattern of negotiating against themselves, which invariably ends with the Democrats caving and the Republicans still finding a way to oppose it.

    It was published the other day that last year President Obama asked Republican Senator Chuck Grassley if the Democrats conceded on every point and endorsed a healthcare bill with all the changes Grassley wanted, would he support it? Grassley still put him off!
    http://voices.washingtonpost.com/plum-line/2010/11/in_testy_exchange_chuck_grassl.html

    Republicans won’t vote for anything, including their own proposals, if the President supports it too. How do you negotiate with that?

    Reply

    Matt Franko Reply:

    Beowulf, Because these are the morons he has advising him:

    November 18, 2010
    America’s budget deficits and Fed’s quantitative easing risk bond-market “implosion,” Robert Rubin says
    Warning of the risk of an “implosion” in the bond market, former Treasury Secretary Robert Rubin says the soaring federal budget deficit and the Fed’s quantitative easing are putting the U.S. in “terribly dangerous territory.”

    http://www.blanchardonline.com/investing-news-blog/econ.php?article=1455

    This is just from last week. So these morons are still out there as we speak and dug in with the same old propoganda with no employment growth in over two years. Now apparently with QE2 to use as new ammo. Obama seems really boxed in wrt fiscal by the Left and Right. I think at this point we can only hope for the current muddle thru at best, and hope they (both Parties) dont screw that up. Resp,

    Reply

    beowulf Reply:

    Obama seems really boxed in wrt fiscal by the Left and Right. I think at this point we can only hope for the current muddle thru at best, and hope they (both Parties) dont screw that up.

    Yeah, that’s really astonishing. Over the last two years, every time Obama agreed with the budget hawks instead of disagreeing vehemently, he just boxed himself in tighter. And he still doesn’t get it. I’ll tell you, there’s no way that if McCain had won, the Republicans would have hesitated for a second to go full-on tax holiday. The Democrats would have been bought off with some infrastructure spending and all would be right in the forest.

  4. Mr. E says:

    Yes, this is the direct result of the large federal budger deficit.

    I am looking at a huge upswing in spending over this holiday season. While unemployment is high, it is the same as last year. Stability in the U.S. means spending.

    Additionally, it appears that Upper income people in the U.S. are doing well. This group drives a vast amount of discretionary spending relative to the total amount – probably nearly 40%. Low unemployment, decent raises, subsided panic.

    CMI reading has turned up: http://www.consumerindexes.com/

    We will have a good holiday season driven by upper income spending.

    Yes, this is the direct result of the large federal budger deficit.

    Reply

    WARREN MOSLER Reply:

    yes, Baron’s cover, so may be mostly discounted by current equity prices, unless sales exceed expectations

    Reply

    Jim Baird Reply:

    I was at the local mall a few weekends ago and I was frankly astonished at what a madhouse it was. I remember going there last year in the middle of Christmas season and just seeing a few people strolling around. Activity is definitely picking up, but it probably will not be at anywhere near the level neccessary to drive any appreciable new hiring. Looks like the “new normal” will be about 7-8% headline unemployment (much more underemployed and discouraged, of course), and I bet mainstream economists are already writing papers explaining that that is the new NAIRU…

    Reply

    Mr. E Reply:

    I had a very strange experience the other day simliar to yours. I went to walmart and to Oak Brook shopping mall in the same day.

    Oak Brook shopping mall is pretty upscale – not absolute luxury, but certainly quite nice. Apple store, C&B, Sushi restaurant

    Walmart was nearly deserted on a Saturday morning, but Oak Brook was crowded.

    Reply

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