John Dizard: The Sun Also Rises

Discussion in 'Economics' started by trefoil, Jul 19, 2009.

  1. As an antidote to the gloom & doom, a somewhat upbeat view from the FT:

    Consumer spending outlook may not be as bad as painted

    Three months ago, it was collectively decided that we were not all going to die, now. Still, it remained an article of faith that while we were not going to die, the world, defined as the US, the UK, and other countries that get major movie releases at the same time, would wallow in poverty and enforced savings forever. We would resole old shoes and repair ancient cars as they do in Havana. China might recover, somehow, but that would happen on another planet. In place of an industrial base, we would have Twitter.
    That may not be the orthodox formulation of the consensus view, but those are the underlying sentiments. Having been through a few of these cycles, I’ve heard it before. I had thought that the wide dissemination of Prozac and other SSRI mood drugs would have smoothed out the swings in the bipolar American character, but apparently their influence is limited.
    It’s not that investors are all fools. They are, however, dependent on data and models that work badly at turning points...So I went back to talk with Susan Sterne of Economic Analysis in Greenwich, an indefatigable miner of consumer data. I was set on this course by noticing that one of the most widely e-mailed pieces of US economic commentary lately was an essay by Mort Zuckerman titled “The Economy is Even Worse Than You Think”. Mr Zuckerman, an entertaining and erudite property developer and newspaper publisher, has a tendency to see the glass not as half full, or half empty, but bone dry and crawling with bugs. This served him well a couple of years ago, when he pulled back from new real estate development, but maybe he is extrapolating a bit too far.
    As for the notion that there can be no general revival without a recovery in housing, history says otherwise. There was, for example, a US economic recovery that started in 1991; housing didn’t come back strongly until 1995.
    As Ms Sterne sees it: “The employment data doesn’t pick up the turn in the economy, because of the way it’s collected. The data has a tendency to smooth out changes.”
    It’s not just the seasonal or calendar adjustments, it’s the nearly insuperable problem of new jobs coming in different places than jobs were before. Former full-time car workers are counted, but employees at a new wind turbine installer in Texas will be noticed months or years later.”
    The rebound in consumer spending should be bigger for the middle class than for the rich. Houses too large for government-sponsored mortgages are way overpriced, and will not move until they are drastically discounted. It takes rich people longer to face reality than working people. So ultra-high-end Hermes, or even Tiffany, will likely face a longer wait for sales than the Coach handbag retailers, and those selling through Sears and Target.
    ...And the debt paydowns, not to mention defaults, have freed up spending power. For example, the US consumer is spending $100bn less on mortgage debt service, at an annual rate, than she did in 2007.
    So even if the recovery must be paid for with earnings, rather than debt, the prospects for most consumers are better than the investing world thinks.