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Recovery! Recovery! Not…

Harry was on CNBC last night (8:05ish).  I still cannot get used to the fact that we are now the BEAR at the party!  For over a decade for me and two decades for Harry we have been considered perma-bulls and now we are the kill-joys.  Things change.

For all of the positive signs that people want to throw at us, there are still considerable  obstacles that are between us and a recovery, and they show no signs of abating anytime soon.  These problems - personal debt, unemployment, etc. - all stem from the same theme of a change in personal spending.  And yet almost no one will admit that this is THE determining factor. 

2/3’s (used to be 73%, now 65%) of our GDP is personal consumption.  As we consume less, businesses make less, so they employ less, so workers have less to spend…and therein lies the vicious circle we have entered. 

 The Boomers spent two decades spending more.  The last 5 years this spending created a debt-bubble that is currently being worked off, or de-leveraged.  It’s painful.  It’s no fun.  But it is necessary.  At the same time this group has firmly moved into the “save more” camp.  Also a good thing.   But it further slows spending, further increases the pain.

On the program last night there was a discussion of “pent-up demand”.  Really?  Lots of people are just dying to make even larger purchases, adding to their personal debt load in the face of job losses, mounting residential foreclosures, falling asset prices and steeper taxes? 

This morning JPMorgan announced great profits, but also increased loan-loss reserves for personal credit.  In the months ahead, it will be credit cards, prime loans, and then commercial real estate that cause setbacks. 

Being bullish is more fun, but helping readers protect themselves is more rewarding.  We’ll stick with our research and, for now, the kill-joy point of view.