| The term red pill and its opposite, blue pill, are pop culture terms that have become a common symbol for the choice between the blissful ignorance of illusion (blue) and embracing the sometimes painful truth of reality (red). |
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Consumer Spending Grows Faster Than Paychecks
WASHINGTON — U.S. consumers boosted their spending in February by the most in seven months, raising expectations for stronger growth at the start of the year.
Americans spent more even as their income barely grew. To make up the difference, many saved less.
Consumer spending rose 0.8 percent last month, the Commerce Department said Friday. The biggest increase since July coincided with the best three-month hiring stretch in two years.
The jump in consumer spending helped Wall Street close out its best first quarter since 1998. More spending also led economists to upwardly revise their economic growth estimates for the January-March quarter.
Paul Dales, an economist at Capital Economics, now expects annual growth for the first quarter to be around 2.5 percent, compared with earlier estimates of about 2 percent. Consumer spending drives roughly 70 percent of economic activity.
Some of the higher spending last month reflected surging gas prices. But consumers spent more on other goods and services, too. After excluding inflation, which was due mainly to gas prices, spending rose a solid 0.5 percent.
Many Americans are spending more freely after the economy added an average of 245,000 jobs a month from December through February. That’s lowered the unemployment rate to 8.3 percent, the lowest in three years. Most economists expect similar job growth in March.
Still, the hiring gains have not resulted in bigger paychecks for most people. Income grew just 0.2 percent last month, matching January’s weak increase. And when taking inflation into account, income after taxes fell for a second straight month.
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Personal Saving Rate Plunges As Americans Get Back To Spending More Than They Earn
Back in the good old days of the mid-2000s, before that whole unpleasantness with the global financial crisis and the near-depression and what have you, Americans lived like kings. Kings, I say, with big-foyered mansions and six-wheeled Humvees purchased entirely with borrowed money because being fiscally prudent is the sort of thing terrorists do.
Then when the whole near-depression thing hit and the banks repossessed our mansions and Humvees, we were forced to live like cave-dwelling Taliban, “saving” our money instead of spending it. When we had money, that is.
Well, those days seem to be over. We’re back to spending more money than we earn. Yay?
The Commerce Department reported this morning that Americans jacked up their spending in February by 0.8 percent from the month before, even while their incomes only increased 0.2 percent. Take inflation into account, and we actually lost money in February, the third decline in the past four months, while still managing to raise inflation-adjusted spending at the fastest rate since September. Boom. Take that, Osama’s ghost.
As a result of this kick-ass mismatch between spending and income, the personal saving rate, which is the government’s measure of how much Americans save — the percentage of disposable income we don’t blow on lottery tickets and smokes — tumbled to 3.7 percent, the lowest rate since a similar 3.7 percent back in August 2009.
To find a lower saving rate, you have to go all the way back to December 2007, when the rate was just 2.6 percent. Hmm, what’s special about December 2007? Well, that’s when the recession officially began, according to the National Bureau of Economic Research.
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The Fed Obliterates the Savings Ethic
Depression babies learned early that “saving for a rainy day” was not something one hopes to do but a requirement. The saying originated when most people worked on the farm. And when it rained, the fields were too wet to plow, and the farmer — not to mention the hired hands — made no money.
Of course, my grandfather was the diligent sort who would use rainy days to do required maintenance on his implements, noting with derision other farmers who spent rainy days at the bar in town. He believed they would surely end up with broken equipment when the sun would reappear, keeping them from making hay.
So the idea of savings is not necessarily the return one receives on the money that’s socked away, but the piece of mind that, when the weather doesn’t cooperate, the saver has a little stash to tide him over. Of course, the vast majority of us don’t have to worry about the weather.
But an economic storm hit a couple years ago and plenty of people have not had work, rain or shine. Those who took heed of that old saw have no doubt weathered the storm better than those who didn’t. Most financial advisors recommend that a person have three month’s worth of living expenses saved — and some say six months worth, just in case. But how many people heed that advice?
There is no caveat to the counsel that says, “Keep six months of savings around if the money is earning at least six percent.” Even if the money sits there all shiny, not earning a thing, it’s the liquidity and insurance against the unknown that’s the issue.
Unfortunately, a central bank’s debauchery of the currency serves to raise people’s time preferences and impair their judgment. In a blog post recently, I highlighted the advice of life coach and author John P. Strelecky, who advises people to spend their tax refunds on an experience they will remember forever, rather than saving the few hundred or thousand dollars that the IRS may be giving back.
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Grant Williams On The Simplicity Of Owning Gold
As we enter a week in which the expectations are high for yet another large expansion of central bank balance sheets, and ever more extreme monetary policy (thanks to the LTRO 2), we thought it appropos to listen to Grant Williams, of the famous “Things That Make You Go Hhhhm” newsletter, explain in its simplest terms, why it is still a good time to own gold. In two excellent and succinct presentations, Williams discusses the ‘simplicity’ of investing through the last four decades but ends by focusing specifically on the rotation to Gold at the start of the last decade (2000) and why the reason for rotating out of the precious metal has not occurred yet. Seeing the world of Gold as a battle between Too Much and Not Enough (and drawing on global supply, demand, and holdings flow) Williams lays out the reasons for owning gold, and how to know when to cover – as he narrows the five reasons to reconsider Buffett-and-Roubini’s Barbarous Relic down to one simple rule – Central Bank Monetary Policy Changes.
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Argentina’s Economic Collapse
After many years of apathy in the country, the insurrection exploded. The spontaneous revolt of facelesspeople meant saucepans were being banged in every neighborhood, all the way to the city’s vital centers.
What happened to Argentina? How was it possible that in so rich a country so many people were hungry? The country had been ransacked by a new form of aggression, committed in time of peace and in a democracy. A daily and silent violence that caused greater social disruption, more emigration and death than the terrorism of the dictatorship and the Falkland Islands war.
Ever since independence, almost 200 years ago, Argentina’s foreign debt has been a source of impoverishment and corruption and the biggest scandals. Since the first loan negotiated by Rivadavia in 1824 with the British Bank Baring Brothers, the debt was used to enrich Argentinean financiers, to control the finances and empty the country of its wealth.
This foreign debt always went hand in hand with big business, and with the complicity of nearly every government, from Miter and Quintana to Menem and De la Rua. The policy of indebtedness gave rise in Argentina to generations of technocrats and… Continue reading
Gold vs Gold Stocks – Goldman Releases “2012: A Gold Odyssey? The Year Ahead…”
As one can glean from the title, in this comprehensive report by Goldman’s Paul Hissey, the appropriately named firm deconstructs the divergence between gold stocks and spot gold in recent years, a topic covered previously yet one which still generates much confusion among investor ranks. As Goldman, which continues to be bullish on gold, says, “There is little doubt that gold stocks in general have suffered a derating; initially with the introduction of gold ETFs (free from operational risk), and more recently with the onset of global market insecurity through the second half of 2011. However, gold remains high in the top tier of our preferred commodities for 2012, simply because of the extremely uncertain macroeconomic outlook currently faced in many parts of the world. The official sector also turned net buyer of gold in 2010 for the first time since 1988, and has expanded its net purchases in 2011.” And so on. Yet the irony is, as pointed out before, that synthetic paper CDO, continue to be the target of significant capital flows, despite repeated warnings that when push comes to shove, investors would be left with nothing to show for their capital (aside from interim price moves of course), as opposed to holding actual physical (which however has additional implied costs making it prohibitive for most to invest). Naturally, this is also harming gold stocks. Goldman explains. And for all those who have been requesting the global gold cash cost curve, here it is…
- We feel there are some obvious solutions to the flight to physical gold ETFs. In order to entice investors away from the gold ETFs, producers
must- Reduce perceived operational risk
- Deliver to market expectations (which includes managing those expectations)
- Demonstrate volume- (not just price-) driven EPS growth
- Return cash to shareholders
- Continue to replenish resources and reserves
- It is also likely that some of the derating we have seen recently has been as a result of changing sentiment towards sovereign risk. With a skittish view toward equities in general, and a decreasing willingness to pay for future earnings, it appears as though the market is less inclined to favour exposure to companies in locations where the perceived risk is higher – rightly or wrongly (West Africa, Philippines, etc.).
