Shopping Like it's the End

Incomes are not moving and, in fact, are losing ground against inflation, and of course unemployment and under-employment remain stubbornly high. Yet, people are buying stuff. Retail spending and the retail sector has been a phenomenon. The thing is it's not easy to understand how this is happening, especially considering how even the most recent reading of consumer credit shows credit card use lower. Over the past couple of years, credit card usage is down sharply.

We know Americans love to shop, but how are they pulling it off? The simple answer is consumers have been dipping into savings, but even that trend has odd angles. In the meantime, the S&P Retail Index has skyrocket since the financial meltdown.

Are Savings Running Dry?

There was a period when the official savings rate in America was going backwards. At that time the lack of official savings was being made up through the spike in home values and even the rebound in the stock market. Then housing wealth vanished, so Americans began to save again—big time. Personal savings soared to 7.1% by May 2009 but has been slipping since. In the most recent month (April 2012) it was down to 3.4%. With that in mind, we have to wonder how the heck are people still spending money at malls?

The Secret

Savings in general have come down dramatically in the past year, but the secret to why retail keeps rocking is why people save. The savings pool is shrinking, but money allocated to spending has increased. Yes, there has been a radical shift in priorities. Using the Fed Survey out this week, it's clear that people have given up on education and retirement to spending now and stay liquid (read fear). This is one reason retailers have benefited - the emotional satisfaction of buying stuff even as the world falls apart, or particularly because the world is falling apart.

It's an amazing thing but it's real - for now.

Since 2004 through 2010, and I'm sure even more pronounced today, it's clear that Americans have thrown in the towel. Not saving as much for education and retirement dovetails with the notion we've peaked and it's time to split up the spoils. It's a terrible indictment of leadership and individual resolve. By the same token, it's tough to watch savings go bust and higher education costs eclipse economic return on investment. It doesn't have to be this way. I get how it might feel better wearing your net worth than watching it dwindle on quarterly statements but quitting makes it that much harder for traditional reasons for saving to pay dividends.

In a perverse way, looking for a shift in reasons for savings away from purchases and liquidity could mean slower economic growth, but it would be a great vote of confidence in the future of America.

Tidbits

* I read they are going back to recheck the times of Secretariat in his Kentucky Derby win and I wonder what jerk thought of that dumb ass idea.

* The US deficit was $125.0 billion in May as government spending soared 31% to $305.0 billion. Meanwhile, Chinese banks lent out $125.0 billion in May.

* Cyprus asked Russia for a €5.0 billion loan yesterday. It seems odd a member of the EU would ask Russia for money but they actually got €2.5 billion in December. Meanwhile Cluster Stock pointed out why Russia seems to care so much - military bases in the Mediterranean, tons of natural gas and off shore banking haven. Cyprus' largest bank, Popular Bank, lost a record €3.2 billion so the island nation is desperate.

* Next year, if the other team is there for the first time and looking at the lights, we're going to punch them in the mouth. They'll be down two nothing before they can blink. Chris Bosh January 2012 Esquire interview.

The Market

It was a nice rally that would have been great if people participated. Be that as it may, the market fought off a mid-session lull to gain strength into the close. I love sessions where the market gains strength into the close. Light volume might mean light conviction, but it doesn't mean we completely dismiss the ability of the market to gain traction. I like the action in technology, energy, materials, and financials. It was good to see the market take a stand, but for the moment it's still more about Europe than fundamentals. But, this is also a good distraction for another stealth rally.

The Dow Jones Industrial Average finished above its 200 day moving average and now faces the next big test at the 50-day, currently around 12,676.

Greek Horse in the Mouth

"The people of Greece want to replace the failed old memorandum of understanding - as signed in March with the EU and International Monetary Fund - with a national plan for reconstruction and growth. This is necessary both to avert Greece's humanitarian crisis and to save the common currency." Alexis Tsipras

Alexis Tsipras, leader of the leftist Syriza party in Greece is now saying he doesn't want to abandon the Euro but to come up with plan for reconstruction and growth. That's a euphemism for more spending but where does that money come from and what will the strings be? I will give him credit, for a new politician Tsipras is playing all the usual cards of compassion, fear and loathing. But, we need to wonder if he's using the most famous political trick in Greek history - is this overture (even with its slightly veiled threats) just a wooden horse?

While we await Sunday's vote one report says €700.0 million was snatched out of Greek banks yesterday alone, and some put the daily average at €500.0 million. Soon there will be no banks to bail out in Greece, so it could all be a moot point.

In the meantime, overnight Mariano Rajoy demanded the ECB step in now to provide liquidity and stability.

Shopping Like it's the End

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