Monday, December 24, 2007

Salute to the American Consumer

Credit CardsTomorrow is Christmas. Not to sound so cynical, but it really is one of those things that has turned into a consumer driven holiday. Given that, it gives great insight to where we are as a nation economically and where we might be headed for the next year.

This year looked to be a bad year for retailers. Many people were blaming the subprime mess and credit crisis for the problems. Others believed that the consumer was worried about a recession. But it looks like there may have been a slight last-minute rush to the stores.  However, I wouldn't rush to crown this a great success.  Other reports I read are that Credit Card debt is rising, so much of this consumption may indeed be borrowed from the future.

This holiday season will be crucial to myself because it will dictate a lot about where I think the economy is actually going this year, and thus my investment strategy.  You see, people vote with their wallets.  It is an important psychological thing for people to buy things during this time of year as to not disappoint their loved ones.  If people aren't spending, they are worried about the future.  If they are worried about the future, they must see things on the horizon that really worry them.

I've been a natural bear for a while, so I need to temper whatever news comes out about the consumer with my own internal bias.   I would be shocked if this holiday season turns out to be a success as I think the wealth effect will be working in reverse.  People are starting to realize that their home is not an ATM.  I think it is happening slower than it should, but it is happening.  If people feel poorer, they will spend less, and the economy numbers will be affected.


  1. I was talking to a younger colleague last week. He's been venting about how he and his wife have trouble saving. She gets 7 to 9 bonuses a year and they have managed to save nothing. Unfortunately he knows exactly what the cause is... he has a hard time saying no to temptation. For instance, his wife's family is accustomed to trading their cars in every 2 years. Growing up in this mindset, she thought it was normal and "talked him into" letting her trade her 2004 car in for something newer and sportier. Now, my colleague admits that he knows this is financially unwise, but he also wants to trade his car in the following year, using his wife's rationale.

    I share this story with you because I believe most Americans are not that different from my colleague... they know what the repercussions are, but are willing to go against their instincts for an immediate temptation.

    However, I want to end on a good note. After our talk (and yes, after he got his new car), my colleague is on a new mission. He and his wife have made a pact to save. Whenever one person wants to buy something, the other is responsible for pressing why do they need it and more importantly WHY NOW?

    I hope more Americans will turn a new leaf like my colleague.

  2. I was watching the news yesterday morning. I can't believe the statistics: 1 out of 5 men wait to shop for gifts at the last minute. I don't know how reliable the survey pool was, but I'm just glad I wasn't alone. I choose to shop on Christmas Eve because I notice better deals especially on electronics!

  3. We are a now society. Sad but true.