Use access key #2 to skip to page content.

alstry (34.92)

From Consumption to Savings......

Recs

23

September 14, 2009 – Comments (18)

Many of you who focus on doom and gloom are missing the point.....we are going through a change unlike any other change in American history since we switched from the agricultural age to the industrial age.

It was a very convulsive time in our history as over 80% of the family farms were foreclosed and many were kicked out of their homes...but thrity years later....we were well on our way to being the world's premier industrial center.

We are now transforming from the consumption age to the savings age.......a transformation that will be every bit as convulsive as the shift to industry from agriculture.  Much our current occupations today simply exist to support massive consumption.....as consumers, government and business cut way back spending less and saving more.....most of our jobs will no longer be necessary and pay will be cut dramatically.

We have already seen massive paycuts in a number of industries such as airlines, autos, construction, and real estate sales.....now we are beginning to see it in government and health care(responsible for over 50% of GDP).

The problem is that we have built an infastructure and cost structure geared to massive domestic consumption and few are prepared for the change.  Our health insurance, property taxes, mortgage payments etc are all geared to a consumption economy.  Let's take a look at retail for example:

A recent book, “Retrofitting Suburbia,” by Ellen Dunham-Jones and June Williamson, notes that in 1986, the United States had about 15 square feet of retail space per person in shopping centers. That was already a world-leading figure, but by 2003 it had increased by a third, to 20 square feet. The next countries on the list are Canada (13 square feet per person) and Australia (6.5 square feet); the highest figure in Europe is in Sweden, with 3 square feet per person.

Today it is over 23 feet per capita.  If America were to shut down 50% of all retail outlets, and fire 50% of retail workers....we would still have almost 4X relatively more resources devoted to retail than Sweden.....and retail employs a massive amount of workers in America and is responsible for huge sales tax receipts, property tax receipts and is the basis for trillions in mortgages sitting in our retirement accounts, banks, and insurance companies.  If we reduced retail outlets, by 80%....we would still have relatively more than Sweden per captia.

Interestingly, we have reduced new home contruction in America already by 80% in dollar terms and we still have massive vacant inventory out there......auto sales are down 50% and the only way we are moving cars these days if we subsidize the purchased or let people take them for free for 60 days.

Most of our accounting jobs, advertising jobs, architecture jobs, engineering jobs, legal jobs, sales jobs, government jobs, and many other professions and occupations are simply funded by massive domestic consumption.  As the fed continues to implement policies cutting off credit and raising interest rates on the private economy, consumption is sure to contract going forward as interest payments suffocate dollars away from good and services and more to savings..

None of this is the end of the world....simply massive convulsive change that you should now be prepared for as we are still in the early stages in 9.09.

Where it goes is anyone's guess...but you know it is going in that direction as the value of practically everything you own is crashing and we are bailing out bankers. 

The big question comes with the BIGGEST consumer of all....the U.S. Governments...consuming $6.5 trillion dollars per year (50% and growing percentage of GDP)....right now running a $2 Trillion dollar deficit is supporting an unsustainable level of spending.....soon it will come to an end one way or another as receipts keep shrinking....and when it does at you will be prepared for the change....whether that is a benefit remains to be seen.

18 Comments – Post Your Own

#1) On September 14, 2009 at 11:20 AM, sohumtrader (29.25) wrote:

Strong argument that you make for this change, I am not sure how to prepare for this change?

if everything you own or earn is going down in the value, which place do you hide?

Report this comment
#2) On September 14, 2009 at 11:25 AM, AvianFlu (37.42) wrote:

Alstry:
I was surprised when reading this morning's paper (yes, I subscribe to a print paper) to see an article about how federal courthouse guards in our area have not been paid for weeks. They are being told that they may get paid in 60 to 90 days. They are still on the job, but considering filing a lawsuit to get their paychecks. What confuses me is that I thought the feds could just turn on the printing press and print up some more money! What is going on? That was reported on KHQ news in Spokane, WA. As of sept 14 2009 there is a link to the video story at http://www.khq.com/. I didn't watch it...just read the paper.

Report this comment
#3) On September 14, 2009 at 11:30 AM, outoffocus (22.75) wrote:

Whoa!  A positive article from Alstry? I had to do a double take.

sohumtrader

To answer you question, the way to prepare is to follow the time honored advise that is oft repeated but doesn't get much attention: Pay down debt and save.

 As the fed continues to implement policies cutting off credit and raising interest rates on the private economy, consumption is sure to contract going forward as interest payments suffocate dollars away from good and services and more to savings..

I disagree with the article that the Fed is cutting off credit and raising interest rates.  They are obviously talking about a Fed in another country.  The Fed in this country refuses to raise interest rates and cut off credit in an attempt to return the US to its former "glory days" (in the meantime screwing savers).  Therefore the market will have to raise rates for them in the form of lower bond prices and a lower value of the dollar.

Report this comment
#4) On September 14, 2009 at 11:39 AM, dep82 (< 20) wrote:

The problem with comparing retail space between the US and Sweden is the difference in relative sizes of the two countries.  People are more spread out in the US, and therefore need more retail space to get products to the masses.  This need is less now due to online shopping, but nonetheless is still required.  Nobody wants to drive 400 miles to get to the nearest grocery store or clothing store.  I would like to see a statistic on the retail space per capita in the areas of the US that have a comaparable population density to Sweden.  I'm sure it is still higher, but probably less markedly so than a comparison of entire countries.

Report this comment
#5) On September 14, 2009 at 11:42 AM, russiangambit (29.12) wrote:

> I was surprised when reading this morning's paper (yes, I subscribe to a print paper) to see an article about how federal courthouse guards in our area have not been paid for weeks. They are being told that they may get paid in 60 to 90 days. They are still on the job, but considering filing a lawsuit to get their paychecks.

That was standard  for 2-3 years in Russia after the USSR collapse. People weren't paid for 6 months straight and with hyperinflation when they got the money, it was worth 50% less. There was no legal recourse.

This time around Russia has a law that a company not paying a salary practices unvoluntary enslavement and is liable under the law. Of course, the courts are still corrupt, so I am not sure how much help it is.

California was paying state workers using IOUs, I wonder why WA is not doing the same?

Report this comment
#6) On September 14, 2009 at 12:14 PM, alstry (34.92) wrote:

dep,

we have 4x relatively to Australia.....a very vast nation with modest population.

 

The key question is if we are killing the comsumption economy....were are we going????

Clearly cutting off credit and raising interest on tens of millions of consumers and businesses is not helping during the change.

Report this comment
#7) On September 14, 2009 at 12:35 PM, alstry (34.92) wrote:

I disagree with the article that the Fed is cutting off credit and raising interest rates. 

credit card rates are skyrocketing, so are fees....lines of credit are being cut....home equity loans are a thing of the past, so are sub prime loans....same with private equity deals and option arms...

These loans were responsible for trillions of dollars of stimulous per year just a few years ago....now they are gone and the debt service obligation remains......

If you can't see that credit is being cut off....you better open your eyes.

The only way out is to restructure debt....if we don't, consumption will slow to a crawl and so will our economy.

Report this comment
#8) On September 14, 2009 at 1:10 PM, dpid (89.56) wrote:

Being prepared for the change is one thing, but how can we benefit after preparing for the change.

 

Alstry... you made a good case, whare are your thoughts on what will benefit from this change?

Report this comment
#9) On September 14, 2009 at 1:59 PM, jason2713 (< 20) wrote:

First FDIC..

now FHA

 

The Federal Housing Administration, hit by increasing mortgage-related losses, is in danger of seeing its reserves fall below the level demanded by Congress, according to government officials, in a development that could raise concerns about whether the agency needs a taxpayer bailout.

The rising losses at the FHA, part of the U.S. Department of Housing and Urban Development, come as the agency has rapidly increased its role in guaranteeing loans in an attempt to stabilize the housing market.

It isn't clear how the rising losses may affect home buyers. Options for the agency could include politically unpalatable choices, such as asking for taxpayer funds to boost reserves or increasing the premiums borrowers pay for the insurance offered by the agency. Agency officials say if there is a shortfall, they don't have to do anything except report it to lawmakers. But some mortgage and housing analysts see trouble ahead. "They're probably going to need a bailout at some point because they're making loans in a riskier environment," says Edward Pinto, a mortgage-industry consultant and former chief credit officer at Fannie Mae. "...I've never seen an entity successfully outrun a situation like this."

 

Report this comment
#10) On September 14, 2009 at 2:12 PM, alstry (34.92) wrote:

As money runs out.....stress is rising around the world and so are military build ups....a very troubling trend indeed.


New Delhi, Sept. 11: Delhi may play down Beijing’s posturing in Arunachal Pradesh but a concerned Indian Army is raising two more divisions, or about 30,000 men, in the Northeast.

The army has sounded an operational alert on the India-China Line of Actual Control (LAC) after reports of a Chinese military exercise involving 50,000 troops in Tibet, where Beijing has increased its activities. Correspondingly, the Indian Army is said to be conducting an operations exercise in Arunachal.

http://www.telegraphindia.com/1090912/jsp/nation/story_11484886.jsp Report this comment
#11) On September 14, 2009 at 3:00 PM, TMFCrocoStimpy (95.68) wrote:

Alstry,

I can't keep up with your blogging pace, but would like to continue talking about debt restructuring that we touched on last Friday.  Mind emailing me?  Your email addy isn't available in your profile.

-Xander (Stimpy)

xtwombly@foolfunds.com

Report this comment
#12) On September 14, 2009 at 4:10 PM, alstry (34.92) wrote:

Stimpy,

My plan is simple, take all EXISTING debt and refinance it with a new bank at 1%.  ALL DEBT.

The old toxic debt would be paid off and the new debt would likely be performing.  In addition, those with debt would see their cash flow improve and be able to spend on goods and services instead of paying money to money losing Zombie organizations.

As you would be dollar for dollar paying off old debt with new debt, there would be no increase in money supply.

Report this comment
#13) On September 14, 2009 at 5:27 PM, alstry (34.92) wrote:

Looks like everyone is getting ready for one BIG party as the world runs out of money....isn't Russia facing financial crisis???

Russia has agreed to lend Venezuela over $2bn to finance the purchase of weapons including tanks and advanced anti-aircraft missiles, Hugo Chavez, Venezuela's president, has said.

Why work when you can borrow.....whooops, that is only for Wall Street and government.

Report this comment
#14) On September 14, 2009 at 5:32 PM, jason2713 (< 20) wrote:

Yet the market chug, chug, chugs away into the green...marking a 80-90 point swing for the day.

It truly is interesting how it continues to climb.

Ah well.  My shorts continue to kill me, but I'm staying the course :)

Report this comment
#15) On September 14, 2009 at 5:36 PM, sohumtrader (29.25) wrote:

outoffocus:

I can't make sense of your response as you believe the value of Dollar would be lower, if I save, I save in dollars, how would be prepared when I have saved and then dollar goes down?

there is a legend, after world war I in germany inflation was raging like nothing Zimbabwe has seen. the story is of two brothers one was hard working and he always use to save some part of his earnings, other brother was alchoholic and only drank from whatever money he can get by some laborwork here and there. During the height of the inflation workers were paid hourly( not the hourly rate, but they actually got paid in cash every hour) so they can give cash to their wives and they can spend immideately, otherwise the vlue of money would go down subtantially if they waited to get paid by end of the day.

After the inflation has taken its toll the hard working brother calculated his assets, he had less money than the other brother who is alchoholic as he collected the empty bottles of liquor and sold it. alchoholic brother was richer than the hardworking one.

 

I do beleive credit is being cutoff, My creditline from all the credit cards last year was 250k now it totals to 100k, which is less than half. haven't seen any home equity line of credit offer in last 3 months.

 

Report this comment
#16) On September 14, 2009 at 5:50 PM, outoffocus (22.75) wrote:

sohumtrader

I guess I need to clarify.  The first and third parts of my response were directed at the original article.  The second part "pay down debt and save" was directed at you.  I feel that you are in a better position to "exit the dollar" if you are not bogged down in debt.  Most Americans have way too much debt and no savings.  How can you weather an economic storm if you have no money?  How can you invest if you are too busy paying interest on debt?  I'm sure brokerages will be willing to lend on margin in a couple years, but that margin debt will be at outrageous interest rates.  It will be better to invest you own cash.  Thats why I said pay down debt and save. And yes I do believe the dollar will fall.  But unlike most people, I dont fall necessarily in the inflation/deflation camp.  I believe we will have stagflation, where imported commodities will go up in prices and leveraged assets will fall.  The less debt you have now, the more you will be able to benefit, or at least weather stagflation.

Report this comment
#17) On September 14, 2009 at 6:11 PM, sohumtrader (29.25) wrote:

Outoffocus,

I understand what you are saying about people who are in serious debt.

but "exit the dollar" how do you do that, on the name of foreign etfs I have some emerging and european funds but I can't sell my house and put all my money into it. can't just buy gold and bury it in ground either( i can do it for few pounds of gold, that is the risk I am willing to take besides my GLD position). Oil, scarred to speculate on that, already more than 50% down on my dollar cost averaged UNG position.

I need to find a way where I can invest in US in dollars and still be protected from inflation/stagflation either scenario.

 

Report this comment
#18) On September 14, 2009 at 9:42 PM, outoffocus (22.75) wrote:

sohumtrader

Well the first thing I would do is take a deep breath.  We may be in for some hard times in the next couple years, but like others have pointed out, I dont think we are going to have a Mad Max scenario.  But I'll point you to a post I made in another blog

The third tip would be to become more entreprenuerial.  I dont consider myself a permabear, but I do believe the days of obtaining and maintaining a middle class lifestyle by simply going to school and getting a good job are coming to an end.  If one wants to be truly prosperous, they must be willing to start their own business. Once again, if you are leveraged up to your eyeballs in debt (this includes mortgages) your ability to start your own business is grossly limited.

I think the only way the US economy can recover is to produce.  More importantly, we need to produce items that people in other countries want to buy. Thats one advantage to having a weaker dollar.  But its only an advantage to exporters.  

But I guess more to your point, depending on your situation, your hedging activities may differ.  I would be (and have been) investing in commodities and commodity producers.  With a weakening dollar, these stocks/ETFS will rise in value along with the commodity price.  Thats how most people hedge themselves from inflation.  Of course another idea is if you think inflation will happen in the immediate future you can stock up on food and other goods now before they skyrocket in price.   People with tons of money can trade currencies and actual commodity futures.  However the majority of us will have to weather the storm as best we can.  Most of us can't afford but so many hedges (if any at all). But we can reduce our exposure to debt. 

Thats all I have. Hope this helps.

Report this comment

Featured Broker Partners


Advertisement