Sunday, September 26, 2010

Gallup Reports Real Consumer Discretionary Spending Hits or Ties Multi-Year Lows

Gallup is reporting today that self-reported discretionary spending by consumers has essentially tied its low point from March, 2009. A total of 21,000 phone interviews over the prior 14 days shows that outside of normal bills/mortgage/auto payments etc., respondents spent $55/day. The margin of error is 3%, which I take to be $1.65. The low point I can find by scrolling over the data through the beginning of 2009 is $54 in March 2009. Given that this data is not adjusted for price increases, which the government says have occurred when housing costs are excluded, real consumer spending may actually be down over almost any time period one wants to use. This apparently was not a Recovery Summer for American consumers.

The same survey showed daily discretionary spending about $75 this past spring. Not shown is the data from the first part of 2008, when the recession was on but was just a mild slowdown so far as consumers knew. My recollection from following this survey then is that this number that is now in the $50s was in the $100-130 range.

This is one of the reasons why I feel this is a depression. Yes, all the money-printing and cyclical factors, plus 1% per year population growth, help keep some economic matters growing, but in the real world, the normal vitality of the American economy has yet to show itself. And truth be told, aside from the housing and credit bubble, said vitality was lacking all through the prior decade.

(The Gallup survey apparently includes all respondents, not just ones with jobs or who are retired. In other words, it presumably includes spending due to transfer payments, including those "paid for" by expansion of governmental deficit spending. Thus the underlying trend based on real earnings is yet worse than shown.)

This data dovetails with much other data and supports the view that in the "Japanecian" duality of the U. S. economy and financial system potentially going Japanese and/or Grecian, right now it is still in the "going Japanese" mode. Unless the recent data is a true outlier, this recent collapse in spending supports the investment strategy of being long assets perceived as being very safe or non-dollar-related. This is not, however, a short-term timing tool in any way, shape or form.

Nonetheless, I continue to put cash "to work", as the talking heads like to say, in long Treasuries on price weakness for a trade, betting that the Treasury bubble has more bull market moves ahead of it, long in the tooth though said bull market is. The yield spread between 10 and 30-year Treasuries is near its all-time peak, currently 120 basis points. On a ratio basis of the 30-year yield divided by the 10-year yield, that ratio of 3.80/2.60 is clearly at an all-time high except perhaps for several days last month.

The only view one has to take to be bullish on long Treasuries for a trade is that cyclical factors plus Fed actions will keep 10-year yields relatively low, and then that reversion to the mean of the 10-3o spread will occur. Of course, assumptions such as the ones I just made led Long Term Capital and many others to failure, so there are several ways for this reasoning not to hold water. Nonetheless, I like the odds here.

Copyright (C) Long Lake LLC 2010

No comments:

Post a Comment