The Great Consumer Crash of 2009

[SHELLY]

The Great Consumer Crash of 2009
by James Quinn August 19, 2008

James Quinn is senior director of strategic planning, the Wharton School, University of Pennsylvania.

“It is easy to ignore the storm if you look at the opposite horizon. When the storm reaches your location there can be no more ignorance.”

I hate to tell you, but the storm has reached your location and it is a Category 5 hurricane. The levees are leaking. Ignore it at your own peril. The 6,000 sq ft McMansion buying, BMW leasing, $5 Starbucks latte drinking, granite countertop upgrading, home equity borrowing days are coming to an end. The American consumer will not go without a fight. For the last seven years the American consumer has carried the weight of the world on its shoulders. This has been a heavy burden, but when you take steroids it doesn’t seem so heavy. The steroid of choice for the American consumer has been debt. We have utilized home equity loans, cash out refinancing, credit card debt, and auto loans to live above our means. It has been a fun ride, but the ride is over. We can’t get steroids from our dealer (banks) anymore.........http://www.prudentbear.com/index.php/commentary/guestcommentary?art_id=10098

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[ASH]

Great reading Shelly. Thank you. And right on par! :lolabove:

[goofer44]

Pays to be a saver !!

[Andy A.]

What a great post, Shelly, and much as I hate to say it, probably very correct and extremely prophetic. Hopefully, some of us will be able to ride out the storm that is on the way. Those who chose a lifestyle to which I am not accustomed probably will not. But never, fear, we WILL be asked to bail them out under the guise of "helping our fellow man".

[Mango]

Forbes Magazine says that financial advisers will be the job of the next decade. Here's hoping that means that saving and wealth management will be the new trend going forward. This country can't afford to continue like this.

[DD]

Well great. :shock:

Seriously, good post Shel.
And welcome back. :biggrin:

[dunefrog]

Ever notice how people are fascinated with extremes.

For a while, we saw a fascination with an extreme UPSIDE:

1. In the late 90s, tech stocks were going higher. It was "a new economy" and the Dow was "going to 30,000."

2. In the early 2000s, housing prices were going higher. "They ain't making anymore land," so buy anything the bank will let you.

Now we are seeing a fascination with an extreme DOWNSIDE:

1. Oil prices were going higher, so they surely will go still higher--to "at least $200 per barrel." We'll all be living like Mad Max in a few years.

2. The credit crisis, housing market, consumer debt load, etc. will create a "death spiral" or "negative feedback loop" or whatever. It's the end of the world as we know it.

Just as the two upside projections were wrong, so the two downside projections will be wrong in the long run. They both stem from the same deep psychology--that of a mind vacillating between hope and fear. We can't know the future, and some of us can't deal with that. Some people worry incessantly about what might happen. Some of this worry is good and helps us prepare for whatever may happen. But some of the worry does no good at all.

If it is true, as Shelly's prognosticator says, that there will be a great "consumer crash in 2009," there is nothing we can do to stop it now. But the sooner we stop whining, and moaning, and wringing our hands, the sooner we can start building a sustainable future for ourselves.

In Chinese, the word for Crisis and Opportunity is the same. They are two sides of the same coin. So take advantage of this "crisis" to do something positive--start a business, coach a child's sport's team, clean up a dilapidated building, tutor a high school dropout. Just stop the blaming and belly-aching. It's making me sick.:pissed:

[SHELLY]

Just stop belly-aching. It's making me sick:pissed:
http://operachic.typepad.com/opera_chic/images/2007/04/21/pepto.jpg

[John R]

great read shelly, thanks. it's inevitable.

[Miss Kitty]

Were you a grasshopper or an ant? :idontno:

[Mermaid]

>>There has been and will be resistance to the inevitable deep recession that is coming. The American consumer is not cutting back willingly. They are being dragged kicking and screaming towards the joys of frugality. The “material generation” needs to dematerialize.<<


I am so happy being fashionable at last! Thanks, Shelly. :clap:

[Miss Kitty]

>>There has been and will be resistance to the inevitable deep recession that is coming. The American consumer is not cutting back willingly. They are being dragged kicking and screaming towards the joys of frugality. The “material generation” needs to dematerialize.<<


I am so happy being fashionable at last! Thanks, Shelly. :clap:

:floor:...did your ears burn yesterday? I found the bargains of the century in a shop before we left Banff...first thing I told Mr. K was..."Mermy will love this!"

Poor poor souls...the joy of frugality is the best thing to possess! :wave:

[30ashopper]

>>There has been and will be resistance to the inevitable deep recession that is coming. The American consumer is not cutting back willingly. They are being dragged kicking and screaming towards the joys of frugality. The “material generation” needs to dematerialize.<<


I think they are quite willing to change on their own! They just needed a little push in the right direction.

http://www.bea.gov/briefrm/saving.gif

[dunefrog]

Ok. I know this is going to be a boring read compared to the polemic that Shelly posted. But that polemic was based on statistical data regarding the savings rate. Well guess what? Statistics don't always tell the whole story.

This article (http://www.kc.frb.org/PUBLICAT/ECONREV/PDF/2Q06garn.pdf) is an economist's take on the so-called "savings rate." He tells you how it is calculated. But more importantly how this caculation changes over time to adapt to changes in economic reality.

Bottom line: he says there is always a lag between how the savings rate is calculated and what is really happening in the economy. In other words, the current economic model probably does not fit the way the world currently works; it fits the world as it worked a few decades ago.

In the 70s, most people "saved" in bank accounts or CDs; now people have most of their savings in mutual funds, stocks, bonds, real estate. The rate of growth for these new savings vehicles is much higher (over the long term) than a bank account or a CD. The savings rate as it is currently calculated does NOT take into account asset appreciation at all, but instead it looks only at the amount you spent to buy that asset. This is a big flaw in that model because people will not sock away 10% of their income like there parents did if they can sock away 2% now and end up with the same 10% at retirement because they invested in assets with a higher rate of appreciation.

Now I'm not saying the savings rate hasn't declined a bit. And I'm not saying that frugality and responsibilty are bad. I'm just saying that we need to be careful not to be scared too much by the Chicken Little's among us.

[SHELLY]

I think they are quite willing to change on their own! They just needed a little push in the right direction.

http://www.bea.gov/briefrm/saving.gif

That's a snapshot of the "economic stimulus checks," it will disappear quickly.

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[SHELLY]

Bottom line: he says there is always a lag between how the savings rate is calculated and what is really happening in the economy. In other words, the current economic model probably does not fit the way the world currently works; it fits the world as it worked a few decades ago.

In the 70s, most people "saved" in bank accounts or CDs; now people have most of their savings in mutual funds, stocks, bonds, real estate. The rate of growth for these new savings vehicles is much higher (over the long term) than a bank account or a CD. The savings rate as it is currently calculated does NOT take into account asset appreciation at all, but instead it looks only at the amount you spent to buy that asset. This is a big flaw in that model because people will not sock away 10% of their income like there parents did if they can sock away 2% now and end up with the same 10% at retirement because they invested in assets with a higher rate of appreciation..

There's a BIG difference between "Saving" and "Investing." "Savings" is low risk/low reward used for emergencies or living expenses for those who have a very short investment horizon; whereas "Investing" is RISK/reward. BOTH are required--sacrificing one for the other is a seriously risky proposition. Many who cashed in their CDs, cleaned out their 401k's and raided their kid's college funds to load up on preconstruction "investment" condos in 2005 (or loaded up on financial stocks a year ago) are now aware of the risk of not having sufficient "savings" to back them up.

Now I'm not saying the savings rate hasn't declined a bit. And I'm not saying that frugality and responsibilty are bad. I'm just saying that we need to be careful not to be scared too much by the Chicken Little's among us.

The word is "prepared"...not "scared."


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[Mermaid]

That's a snapshot of the "economic stimulus checks," it will disappear quickly.

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Our economic stimulus check was a whopping $56, about which my bank teller commented (as I deposited the WHOLE thing :lol:): "Wow! This is the worst one I've seen so far!!!!"

[dunefrog]

There's a BIG difference between "Saving" and "Investing." "Savings" is low risk/low reward used for emergencies or living expenses for those who have a very short investment horizon; whereas "Investing" is RISK/reward. BOTH are required--sacrificing one for the other is a seriously risky proposition. Many who cashed in their CDs, cleaned out their 401k's and raided their kid's college funds to load up on preconstruction "investment" condos in 2005 (or loaded up on financial stocks a year ago) are now aware of the risk of not having sufficient "savings" to back them up.
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Really...:shock: The essence of the article I posted was that you can't just look at the falling "savings rate" to tell if Americans are becoming more "irresponsible." You have to look at the bigger picture. Investments are part of that bigger picture and tell the opposite story.

And of course investments are riskier than traditional savings. That's why they bring a higher return. And who said that some savings was not a good thing? Who are you arguing with?

Did mommy and daddy raid YOUR college fund? Is that what this is all about? There now. :cry:

[SHELLY]

Really...:shock: The essence of the article I posted was that you can't just look at the falling "savings rate" to tell if Americans are becoming more "irresponsible." You have to look at the bigger picture. Investments are part of that bigger picture and tell the opposite story.


Americans have become more irresponsible--one just needs to look past the government's smoke and mirrors that's trying to convince us otherwise.

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[Chickpea]

Americans have become more irresponsible--one just needs to look past the government's smoke and mirrors that's trying to convince us otherwise.

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Cannot imagine anyone disagreeing with this. It is just amazing to me that it is only now that people (some at least) seem to be waking up!! We are in for a tough tough road ahead and the friggin past 8 years of this pathetic administration have just exacerbated and highlighted the problems.

[SHELLY]

Cannot imagine anyone disagreeing with this. It is just amazing to me that it is only now that people (some at least) seem to be waking up!!


...those feckless stragglers' 'reality checks' will bounce when they try to pay down over-extended credit cards only to find the bank has snatched back the HELOCs they were counting on to get by in these tough times.

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[SHELLY]

And next in the bailout cue is.................

US Automakers Want $50 Billion in Federal Loans

Automakers plan to urge Congress to support funding up to $50 billion in low-interest loans over three years to help them modernize their assembly plants and develop next-generation fuel-efficient vehicles.

http://www.cnbc.com/id/26382896

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