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The unsustainable trend continues. Alternate Title: "Turn This Mutha Out"



March 27, 2009 – Comments (2) | RELATED TICKERS: MMM , R


I'm getting tired of bashing positive headlines.  I am not a negative person by nature.  I'm not one of those perma-bears who have been calling for a crash for the better part of two decades and are gloating right now...even though it is only a coincidence that they were right.  Nor am I one of those alarmist, survivalist wackos who is calling for you to load up on canned goods and bottled water or move out into the middle of the woods because the end of the world is near.  I am just a realist.  So when I see misleading headlines like this one from the Associated Press I feel the need to bash them:

Consumer spending up for 2nd straight month

While it certainly is good that consumer spending did not fall off of a cliff, the real story here is that we are merely seeing a continuation of the same trend that got us into this mess.  Yes, consumer spending did rise for the second straight month AND the growth in spending outpaced the growth on income again.

The Commerce Department reported this morning that consumer spending rose 0.2% in February and a revised 1.0% in January.  Great, only that people were either borrowing or dipping into their savings to buy all of that stuff because incomes fell 0.2% percent in February and they only rose a revised 0.2% in January.

Not only are people spending more and earning less, but they aren't actually getting any more stuff for the additional money that they're spending...they're just paying more for the things that they have been buying all along.  The personal consumption expenditures price index rose 1% year-over-year in February and 0.8% Y-O-Y in January.

The most important lesson that one can take away from the whole mess that we find ourselves in right now is that it is impossible to spend more than you make for an extended period of time.  You can do it for a while, and it sure is fun while it lasts, but eventually the chickens come home to roost.  Just ask MC Hammer (I have him on the brain because I heard "Turn This Mutha Out" on XM on the way to work this morning.  Yes, I did see him in concert many moons ago, but I'll deny it if you tell anyone).

Yeah, it's great that the stock market is a little better lately and that consumer spending has been showing some strength, but the thing that drives sustainable rallies is EARNINGS.  Companies have to earn more money for their stock prices to rise and stay there.  Unless you change the composition of an economy that is built upon consumer spending (and you should, but it will take time) people have to actually earn more money to spend more money in order to generate economic growth.  To me, this morning's Commerce Department report only shows more of the same sort of garbage that got us into this mess in the first place.


2 Comments – Post Your Own

#1) On March 27, 2009 at 10:45 AM, QualityPicks (59.97) wrote:

I don't know if it is a mere coincidence or not, but it all started when Citi's CEO made the comment they were profitable. Next day Dimon goes to the Chamber of Commerce and makes a speech asking us to put behind the bashing and vilification of wall street. After that, al bad news have been delivered as "good" news. Everybody seems to be ignoring the bad.

My guess this is because everybody is just so tired of the bad news and of the market going down. The market needed to rally. Many headline writers adjust the headline depending on the market reaction. If the market goes up on the news, they adjust their headline to be positive.

I'm with you that I'm not a "radical end of the world" bear, but I am a big bear. It makes me mad, to see all this positive spinning of bad news.

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#2) On March 30, 2009 at 4:12 PM, motleyanimal (39.38) wrote:

Well, it would be nice to have some balance. Soros tours the world media centers with his financial Armageddon prophecy, when eveyone knows he has massive short positions. Peter Schiff may be a free market proponent, but yet he runs to the safety of Socialist Europe.

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