Betting on Nothing

Investors's unrelenting faith in the return of the consumer has helped to sustain a nearly three-year rally in the S&P 500 consumer discretionary sector, which is now just 5 percent below last April's record highs. And yet, as the following reports suggest, there is still no real evidence that Americans have either the will or the wherewithal to whip out their wallets and spend again.

From The New York Times:

"For 2012, Signs Point to Tepid Consumer Spending"

American consumers are running out of tricks.

As the weak economy has trudged on, they have leaned on credit cards to pay for holiday gifts, many bought at discounts. They are dipping into savings to cover spikes in gas, food and rent. They are substituting domestic vacations for international trips, squeezing more life out of their washing machines and refrigerators and switching to alternatives as meat prices have risen.

That leaves little room for a big increase in spending in 2012, economists say, a shaky foundation for the most important pillar of the American economy.

“The consumer is far from healthy,” said Steve Blitz, senior economist for ITG Investment Research.

Even the seemingly robust holiday shopping season is raising concern. After a strong start on Thanksgiving weekend, a pronounced lull followed, causing retailers to mark down products heavily in the week before Christmas. While final numbers for the season are not in, analysts say they are worried that retailers had to eat into profits to generate high revenues.

From Reuters:

"U.S. Consumer in the Slow Lane"

It's up to the consumer to drive the U.S. economy and lift world growth in 2012, and the outlook is far from encouraging.

Over the past three and half years, growth in U.S. consumer spending has averaged a paltry 0.2 percent adjusted for inflation, the weakest in the post-World War II period, Morgan Stanley says.

While the employment picture is gradually brightening, wage growth is going in the opposite direction, keeping a lid on consumer behavior. Over the past year, pay for blue-collar workers adjusted for inflation fell 12 cents from the previous year, according to the Bureau of Labor Statistics. That was the steepest decline since the stagflationary days of 1980.

Pay for all workers has fallen 16 cents this year in real terms.

Consumer buying power, modest over the holiday season, remains constrained by heavy debt loads. Total U.S. household debt as a percentage of disposable personal income is down from its 2007 peak at 130 percent, but it remains well above its 1970-2000 average of 75 percent.

As a result, Stephen Roach, non-executive chairman of Morgan Stanley, sees U.S. consumption remaining anemic for years to come. That will place a drag on global growth, especially in Asia, a big manufacturer of U.S. consumer goods.

"With retrenchment and balance-sheet repair only in its early stages, the zombie-like behavior of American consumers should persist," Roach said.

In fact, the desperation being seen outside the rarified air of Wall Street has triggered a stampede for a different sort of security: food stamps.

"Welfare Lines Overflow" (Wall Street Journal)

Growing numbers of New Yorkers seeking food stamps have created an unwelcome spillover effect at some of New York City's job centers: overcrowding that in some cases has grown so severe, benefits were jeopardized.

The crush of people grew so large at one Brooklyn center in November that the Fire Department intervened and prevented anyone from entering the building.

That was an extreme example of the problem. But clients at many of the city's 29 job centers—which manage public-assistance benefits, including food stamps—regularly arrive long before the doors open to wait in line. Advocates said people miss mandatory appointments, leading to a bureaucratic battle to reopen their cases, or abandon the process after growing discouraged.
[NYHRA]

"It's outrageous," said Charles Leonard, a disabled 50-year-old who complained to 311 recently about a long wait and confusion at a center on Northern Boulevard in Queens. "It's like everybody is running around with their head cut off, and no one cares."

Officials at the city's Human Resources Administration, which runs the centers, acknowledged that serious overcrowding is a problem at five facilities. Advocates believe the problem is broader, affecting roughly 10 centers.

"At best it's benign neglect," said Steven Banks, attorney-in-chief at the Legal Aid Society, which provides legal services to low-income New Yorkers. "At worst, it's like the English poor laws, in which the aim was to make the seeking of assistance so miserable that people wouldn't seek it."

What exactly is the "smart money" betting on?

Comments

[On the descent]

Chris Hedges: “Brace yourself. The American Empire is Over, and the Descent is Going to be Horrifying.”

http://sgtreport.com/2012/01/author-chris-hedges-says-brace-yourself-the-american-empire-is-over-and-the-decent-is-going-to-be-horrifying/

[roger]

Yes Chris Hedges as nailed it.
so has I F stone, Karl Marx and a host of others.
Capital will not be content until the exploited
class is on a par with Chinese labor.
If labor lives luxuriously,then the exploited
class will eat the profits of the 1%, that's
a NO NO!

[robert in london]

That chart is one nice looking (and massive) megaphone. A trip 'down' memory lane (1994) anyone?

[Blissex]

Many of these are brand names that are doing great in China India malaysia etc, all places where jobs and wages are growing fast.

Perhaps not great enough to fully compensate for the demise of the USA consumer, but it is better than nothing.

But the colossal rise in stock prices, mirroring the post-1994 bubble, looks like it is being fueled by debt inflation and margin buying again, with a wall of money pushing up prices.

[We could save ourselves if we want to]

A Petition to Support the Saving American Democracy Amendment

Sen. Bernie Sanders has proposed a constitutional amendment that would overturn the Supreme Court decision in a case called Citizens United vs. FEC.

The Saving American Democracy Amendment states that:

•Corporations are not persons with constitutional rights equal to real people.
•Corporations are subject to regulation by the people.
•Corporations may not make campaign contributions or any election expenditures.
•Congress and states have the power to regulate campaign finances.

http://sanders.senate.gov/petition/?uid=f1c2660f-54b9-4193-86a4-ec2c39342c6c

[young people want real change]

Meet the Mainstream Press

Nothing is more emblematic of the mainstream media (MSM) than NBC’s “Meet the Press.” I wonder if it should be renamed “Meet the Corporate Mainstream Press” because that is exactly what it was on Sunday.

I think the Democrats and President Obama would like nothing more than to run against the man who thinks “corporations are people too.” Mitt Romney would be predictable and would not go after the real issues that are holding America back. The main issue is the fraud and rip-offs in the financial system. There will be no recovery and little job creation unless and until the banks and Wall Street are no longer able to rig the system so they always win. There should also be some prosecutions, but I digress. Romney, who couldn’t get much more than 25% of the Iowa Republican vote, will be very beatable for Mr. Obama. Both are the picks of Super PAC corporations. Santorum would just be the Republican replacement for Romney if he can hold up after Iowa.

Paul, on the other hand, would be unpredictable and difficult to corner. The Congressman also has something all other Republicans envy and that is motivated, young supporters who want real change. President Obama can no longer campaign on the change slogan. He got in and nothing really changed.

http://usawatchdog.com/meet-the-mainstream-press/

[Don Levit]

Regarding the S&P, I understand it is pretty much where it was 10 years ago.
Recently, I invested in fixed-indexed annuities that vary with the S&P. If the S&P goes down, I lose nothing, and it starts from a lower base from which to grow.
If it grows, I capture a percentage of the gain.
In addition, I am guaranteed a 2% return.
Better than 10-year Treasuries!
By the way, while the S&P has languished over the last 10 years, these annuities have returned about 6% a year.
Don Levit

[sharonsj]

I often spend the weekends watching book TV and saw the entire interview. I recommend both book TV and Link TV for some real eye-opening info.

The majority of Americans, as stupid as some might be, still poll center left (never mind what national news tell you). We want an end to the wars waged to further the U.S. empire, we want Citizens United overturned, we want to stop outsourcing, we objected to TARP, etc. Congress ignores most of this. The new law allowing indefinite detention even for an American citizen was objected to by only 8 senators out of 100.

We are becoming a fascist state populated by serfs. I supposed I can take solace in that the mantra of "don't worry, go shopping" doesn't work anymore.

[Slain Street]

Hey Don...if prices rise aren't you locking in lost purchasing power?

Bank of America severing some small-business credit lines
Bank of America is demanding that some small-business customers pay off their credit line balances all at once instead of making monthly payments.

Bank of America Corp., under pressure to raise capital and cut risks, is severing lines of credit to some small-business owners who have used them to stay afloat.

The Charlotte, N.C., bank is demanding that these customers pay off their credit line balances all at once instead of making monthly payments. If they can't pay in full, they are being offered new repayment plans for as long as five years, but with far higher interest rates than their original credit lines had.

Business owners complain that BofA's credit squeeze is abrupt and could strain their small companies and even put them out of business. The credit cutoff is coming at a time when the California economy can't seem to catch a break, and bucks what the financial industry says is a new trend of easing standards on business loans.

http://www.latimes.com/business/la-fi-credit-cutoff-20120103,0,3538902.story

[So much competition, so few disposable dollars]

not pretty...

But this is even MORE interesting and it comes from a grass-roots source. An acquaintance of mine works for the IRS and sent me this email the other day:

I wanted to tell you a little information concerning taxes that is not on anyone's radar (sort of like a stealth aircraft of information). Since about late 2008 early 2009, the requests for payment plans to the IRS has tripled. People out there just don't have the money to pay their taxes in full, so they need a payment plan to keep IRS at bay. Even with a payment plan in place, the interest on taxes due keep adding up and the penalties for not paying on time and not paying in full keep adding up, keeping taxpayers in debt to Uncle Sam, meaning they have less disposable income to spend and invest meaning less money for the economy to grow. I have seen the requests for payment plans to the IRS triple with my own eyes...

http://truthingold.blogspot.com/2012/01/this-is-crime-on-same-level-as-that-of.html