Excellent thoughts here from David Rosenberg. Although the short-term fundamentals are constantly shifting it’s hard to argue with the common sense of Mr. Rosenberg’s long-term outlook for the U.S. consumer:
The market may well have bottomed, and maybe the economy will soon too (though we are not necessarily convinced). Even so, remember that both bottomed in the summer of 1932 and the depression did not end for another eight years. Moreover, despite more than a half-decade of New Deal stimulus and government incursion in the capital market and the economy, we finished off the 1930s with a 15% unemployment rate, consumer prices deflating at a 2% annual rate, the equity market extremely volatile and the long bond yield heading below 2%. The equity market was volatile and pattern-less following the immediate aftermath of the post-lows surge in the summer and fall of 1932, and the enduring story was one of deflation, not inflation, and of income growth, not capital gains. It was not until 1954 that a new bull market began, and the economy never did manage to sustain above-trend growth until World War II.
What was a lingering theme during the 1930s, as is the case today, was frugality; living below one’s means after more than a decade of living above one’s means (the 1990s and early 2000’s were the new 1920s as the savings rate dipped into negative terrain during both go-go periods). Have a look at a New Spirit of Sobriety Takes Hold in the special insert section of the weekend Financial Times and the story behind why it is that consumer discretionary items like Swiss watches are down 24% on a YoY basis — the first time this has ever happened.