Consumer Spending, Capital Spending And Other Ramblings To Close Out The Week
I haven't looked underneath the headline consumer spending numbers released this morning but there is likely some anomaly. Anyone who lives in the U.S. and has some semblance of reality knows consumer spending is very weak. Car sales, truck sales, general retail sales and durables are all reporting poor to outright awful numbers. Backing out food and energy inflation from consumer spending and artificial demand from the financial sector bubble, the economy has likely been in a recession for a year. Much of the global liquidity flows supports this perspective. Especially from Asia. But, given Wall Street is likely in its biggest bubble ever, those propping up the economy and the markets are not going to simply roll over on the spot. When this market rolls over much of the people in the financial industry are likely going to never find employment in that industry again. That is not a pleasant thought for anyone. Making a top in this environment is going to take time as they are fighting for their survival whether they realize it or not.
As I've written, there is also ample evidence that the rally over the last year was a flight to safety as opposed to some renewed belief that the economy is picking up the pace as was generally reported at the time. But, you'll seldom get a dose of reality from the media. As financial markets tighten up, you can expect the messiness to increase. If for no other reason than that the paper pushers are propping up a very unbalanced economy. Additionally, as I have written incessantly, capital spending has been in a recession or depression for the last seven years. I just shake my head when pundits start telling everyone to load up on technology related stocks because capex is going to improve. That is based on ignorance and never comes with any quantitative explanation. To the contrary, as we have discussed, some of the semiconductor companies have reported the worst order backlogs I've ever seen. Now, I've said the move to technology is to get out of anything debt or finance related so now I'll finally tell you a simple reason why capex is not going to pick up. The only thing propping up technology capex so that it looks anything better than horrendous has been the financial industry. Most people outside of the industry have little knowledge of a simple fact that the financial sector consumes nearly thirty percent of all technology capex in the U.S.. With financial companies peaking and set to experience a very painful period of time, you can expect all of the lemmings running to capex to feel very severe pain as reality sets in. CFOs are going to cut budgets, increase hurdle rates, approve only projects with a short term ROI and cancel many ambitious projects. I've lived this mess and speak from a perspective of reality not wishful thinking. What did Buffett say about Wall Street and lemmings? If you don't know that quote, you should put your money on the lemmings if it's a choice between Wall Street and the little critters. Here's a final thought to ponder on this topic. If the finance industry is in a major bubble and they account for a disproportionate amount of technology related capital equipment purchases anyway, their capex related purchases are artificially high this cycle. That's a double negative. So, how dreadful is capex outside of the finance sector? In other words, get ready to pound the last nails into the capex coffin soon enough.
Back to consumer spending. I see a large number of store closings. More so than any time in my adult life. I was talking to a friend who has been in the retail business for twenty years and he has never seen anything like this. While that is anecdotal, it's reality. Ethan Allen, probably one of the best run furniture chains, closed a store after it was open less than a year. Restaurants are closing at a rapid clip as well. Want something more concrete? A measure of net chain store openings and closings across the country turned negative some time ago. Is that concrete enough? How anyone believes consumer spending is anything better than awful with that data point is beyond me.
There you go. Sometimes I share.
As I've written, there is also ample evidence that the rally over the last year was a flight to safety as opposed to some renewed belief that the economy is picking up the pace as was generally reported at the time. But, you'll seldom get a dose of reality from the media. As financial markets tighten up, you can expect the messiness to increase. If for no other reason than that the paper pushers are propping up a very unbalanced economy. Additionally, as I have written incessantly, capital spending has been in a recession or depression for the last seven years. I just shake my head when pundits start telling everyone to load up on technology related stocks because capex is going to improve. That is based on ignorance and never comes with any quantitative explanation. To the contrary, as we have discussed, some of the semiconductor companies have reported the worst order backlogs I've ever seen. Now, I've said the move to technology is to get out of anything debt or finance related so now I'll finally tell you a simple reason why capex is not going to pick up. The only thing propping up technology capex so that it looks anything better than horrendous has been the financial industry. Most people outside of the industry have little knowledge of a simple fact that the financial sector consumes nearly thirty percent of all technology capex in the U.S.. With financial companies peaking and set to experience a very painful period of time, you can expect all of the lemmings running to capex to feel very severe pain as reality sets in. CFOs are going to cut budgets, increase hurdle rates, approve only projects with a short term ROI and cancel many ambitious projects. I've lived this mess and speak from a perspective of reality not wishful thinking. What did Buffett say about Wall Street and lemmings? If you don't know that quote, you should put your money on the lemmings if it's a choice between Wall Street and the little critters. Here's a final thought to ponder on this topic. If the finance industry is in a major bubble and they account for a disproportionate amount of technology related capital equipment purchases anyway, their capex related purchases are artificially high this cycle. That's a double negative. So, how dreadful is capex outside of the finance sector? In other words, get ready to pound the last nails into the capex coffin soon enough.
Back to consumer spending. I see a large number of store closings. More so than any time in my adult life. I was talking to a friend who has been in the retail business for twenty years and he has never seen anything like this. While that is anecdotal, it's reality. Ethan Allen, probably one of the best run furniture chains, closed a store after it was open less than a year. Restaurants are closing at a rapid clip as well. Want something more concrete? A measure of net chain store openings and closings across the country turned negative some time ago. Is that concrete enough? How anyone believes consumer spending is anything better than awful with that data point is beyond me.
There you go. Sometimes I share.
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