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Thread: weekend commentary - a disturbing but silent statistic ...

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    Default weekend commentary - a disturbing but silent statistic ...

    from an investor BBS ...



    has a September Consumer Crush update (registration required).

    (snip)“Our Consumer Cash Flow model [described in their original Consumer Crunch paper] continues to track the consumer “liquidity drain.” In the depth of the 1990/1991 recession, our preferred measure of consumer liquidity had fallen 10 days from 60 days during most of 1987 to 50 days in January, 1991. It ultimately recovered to 59 days in January, 1994. Our measure is barely above 19 days and is still falling."(snip)

    During the week of September 10, demand deposits [i.e. savings / checking / money market accounts - sic] declined to the lowest nominal level since early 1986. In the following week, they achieved the 12th lowest level since the end of 1986. This occurrence is intellectually awesome and economically frightening! Effectively, it means that U.S. households used ALL of their available funds in early September.”


    this 'preferred measure of consumer liquidity' undoubtedly relates the balances in consumer demand deposit accounts versus average / necessary cash flows. Thus the 50 day measure of 1991 implied that consumers had enough money in their savings / checking / money market accounts to cover 50 days worth of average / necessary spending. That measure has now fallen such that consumers now only have enough money in their savings / checking / money market accounts to cover 19 days worth of bills, and the measure is still falling !


    which comes on the heels of this ...

    (snip)"WASHINGTON (MarketWatch) -- Outstanding U.S. consumer debt rose at an annual rate of 5.9% in August, pushed higher mostly by a hefty gain in credit-card debt, the Federal Reserve reported Friday. The overall increase of $12.2 billion was the highest since May, the Fed reported. It pushed total outstanding consumer credit to $2.47 trillion in August, up from $2.46 trillion in July.

    Outstanding consumer credit rose by an upwardly revised 4.7% in July. It was originally estimated to rise by 3.7%. August's data captures the impact of turmoil in financial markets that month, noted Ryan Sweet of Moody's Economy.com. "They provide further evidence that consumers did not pack it in following the events," he wrote in an email.

    Revolving debt such as credit cards was the biggest driver behind the overall rise in August, the data show. That debt climbed by 8.1% in August, or by $6.1 billion. In July, credit-card debt rose by a revised 7.4%.

    Auto, student, personal and other forms of non-revolving debt climbed at an annual rate of 4.7%, or $6 billion, in August. In July it rose by a revised 3.1%. "(snip)


    the greater implication is of course that consumers have already maxxed out whatever opportunities existed to extract cash from home equity via refis and HE (and have already spent it). This was followed by consumers then maxxing out whatever credit lines existed on their credit card accounts (and have now spent this as well). Having run out of additional sources of credit, consumers then began liquidating and 'spending' their assets ... to the point where the former assets in bank accounts have now been spent as well.

    arguably, the only remaining 'assets' still in the hands of consumers are their gov't approved retirement accounts 401k's / IRAs ... which are exempt from bankruptcy proceedings under current law ... and any stocks / bonds / CD's, which are not exempt. Thus with home equity loans having dried up, with credit cards having been maxxed out, and with bank accounts having been emptied, the next thing in the progression will be selloffs of longer term assets i.e. stocks and bonds.

    ~
    Last edited by Melonie; 10-05-2007 at 07:38 PM.

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    Default Re: weekend commentary - a disturbing but silent statistic ...

    They were talking on TV today about rising salaries and rising household spendings as one of the reasons we are not going to get into a recession. No wonder salaries rise, many people have to get a second job to support their families, and they have to make more because everything costs more nowdays. And yes, the household spendings are higher, one doesn't have a choice but to spend more because everything costs more. I bet the numbers for the near future are going to look even more rosy, because once the people finally realise how high real inflation is going to get, they'll run to the stores to stock up on goods before they become even more expensive.

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    Default Re: weekend commentary - a disturbing but silent statistic ...

    yes a few segments are experiencing rising salaries. Among them are union workers, gov't workers, minimum wage workers. But the talking heads on TV are overlooking a couple of fundamental issues when they try to make the point that rising salaries will translate into continued / increased consumer spending that will forestall a recession ...

    #1 the rising salaries are measured pre-tax. With progressive income tax rates, and with rising state and local taxes, it remains to be seen how much after-tax pay increase still exists

    #2 the rising salaries are NOT being viewed in net terms versus the loss of ' supplementary income' which had formerly existed. By some reports, cash-out refis etc. had provided 'supplementary income' amounting to some 6% of total household income in past years. With cash-out refi's now being history, in net terms salaries would now need to rise 6% AFTER TAXES in order to just break even

    #3 the rising salaries for workers that still have jobs need to be offset by the falling salaries of other workers who are now unemployed / underemployed in order to project a realistic potential impact on the economy in general.


    On investment websites, frequent discussions take place in regard to certain financial media mouthpieces following an apparent editorial policy of touting 'good' financial news while minimizing 'bad' financial news. Arguably, this was exactly what happened in regard to the rising salaries report.

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