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“Recovery Awaits Signs of Demand,” I Like That Title

By Rodney Johnson⋅ October 20, 2009 ⋅ ⋅ Post a comment

The above title was for an article written in the WSJ, October 20, 2009.

This is a topic we have been harping on for a long time. Earnings are beating forecasts, but in general (excluding Apple) they are far below previous years. Even then, those earnings were notched by reducing costs, which is a nice way of saying “firing people.” This is nothing new, so I won’t spend a lot of time on it; I just want to make sure that we are keeping our eye on the ball here.

What is new, or rather what is subtle, is the change that is happening before our eyes. For more than 20 years we have been talking about the change in consumption that would happen as our largest cohort (boomers) passed the age of peak spending. We tried many times to paint a picture of what that world might look like. In my mind, we always fell short. Readers and listeners were always left with the impression that everything goes down, and must decline in a straight line. It doesn’t happen, and isn’t happening, that way.

What we’ve done is lower consumption, that much is true. We have also changed what we consume. Gone are the big ticket items that scream financial success (bigger, newer cars, for example), but also require a lot of financing. It might not feel like it to the individual, but the minute we stop using debt to finance, we cut off one of the main sources of lifeblood to the economy. We might still spend close to every nickel we have. We might continue to eat out and buy new clothes. Without the turbo-charged effects of credit, the economy will still soften. If we actually add savings on a continued basis, the effects are even greater.

The outcome remains the same - unemployment. Which is the premise of separate but related article in the Journal today, “Firms Keep the Brakes on Hiring“ (the title is a little different online than in print). Why wouldn’t they? Demand has not returned, no matter what the MSM says. Our current measure of hours worked in a week in the US is 33, the lowest on record (since the 60s). When business picks up modestly there is no need to hire more people, just increase hours worked a little bit.

Less demand, less employment, the same or rising expenses (cost of living, debt payments, etc.). This is not a recipe for a quick recovery.

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Discussion

5 comments for ““Recovery Awaits Signs of Demand,” I Like That Title”

Hello,

I have just signed up, listened to Harry’s October update, and read your posts. I’ve also read a good chunk of his Great Depression. I am completely confused by Harry’s update which seems to contradict his book, and your posts.

He is saying that the market may go up, or it may go down, it’s just basically taking “unusually long” to correct.

He seems to be hedging all of his charts and predictions for the major correction. His update didn’t seem to confirm his previous very assertive conviction that the market will go below 7000.

The update only mentioned maybe Dow to 8000. And maybe not for 6 months. AND he said he would definitely NOT be short the market now. Before, he said he would definitely NOT be in equities after July. That would have missed this major rally.

This can go on forever, and is not unlike any other market pundit out there. How are we supposed to place our bets with this kind of vacllating???

Posted by fritz | October 21, 2009, 12:05 am
IT seems to me that Harry offers two types of advice - very long term based on outstanding demographic analysis and very short term based on technical analysis.

My personal view as a long term investor is to pay careful attention to Harry’s demographic findings in choosing new areas of investment for long term gains, and to pay little attention to the twitchy technical analysis.

Posted by kevinrcoleman | October 21, 2009, 9:01 am
How long is “very long term”? He has advised maybe November should be the end of this rally for now. And maybe 4-6 months out for the bottom. That seems like intermediate…

Also, that doesn’t account for his new hedged advice that no longer predicts a Dow under 8000!

By throwing away his Dow 4000 claim, we are left with maybe a 20% correction, which is, while not good, not such a meltdown as ‘07. His entire thrust and basis for the last 2-3 years has been a much worse scenario than this…

Posted by fritz | October 21, 2009, 1:19 pm
Fritz,
I share your concerns to some extent and am also a new subscriber as of this week. However, after reading the Oct newsletter and listening to his update twice, while I cannot speak for Harry what I think he is saying is the target for the bear market on the Dow is still much lower anywhere from high three digits to 4,000; but it won’t get there in a straight line. What we are likely to see is a next leg down to maybe the 8,000 range short-term; then something of a “correction” before another leg down. That pattern will likely repeat; more likely than a continuing downward slide. So the 8,000 mentioned in his update, I took as being a short-term target, not the ultimate bear market target or even the anticipated lows of the first half of next year.

Of course, that’s only my interpretation of what I think I heard him say.

Posted by dleisele | October 22, 2009, 10:00 am
Diesele,

Thank you for your take on his update. It is a very plausible interpretation, though I feel Harry should not make us “interpret” him.

I am still wondering why he didn’t specifically reiterate his 4000 claim…and truly clarify if he mean 8000 as a final floor of the bear market.

What did you mean by “from the high three digits”… did you mean under 1000??

Posted by rlevy | October 22, 2009, 5:42 pm