the-commercial-investor.com

IMHO there is only one statistic you need to look at to get a glimpse of what the next year will bring … it’s Consumer Spending.

Notice the “off the edge of a cliff” nature of the recent downturn in consumer spending … here are just two signs…

• the bankruptcy of Circuit City
• the 40+ % downturn in auto sales at the big three

And realize that for the last 25 years consumer spending (“Consumption”) has driven over 70% of our GDP (compared with less than 50% in China, for example). It is clear that our spending has supported the recent economic expansion of the entire world.

An expansion that is now coming to an end as our US Consumers stop consuming.

Where did all the money come from? From MEW’s of course.

Those are “Mortgage Equity Withdrawals” that have poured trillions into our economy as homeowners pulled equity out of homes that were rising quickly in value. Now we can all see the values were artificial and everything is crashing back down to earth.

I showed a graph in a previous post documenting the near complete halt in MEW’s … so no money to keep us consuming there. AND …

• unemployment is rising rapidly
• wage growth is stagnant

So no money there … which means consumer spending is grinding to an abrupt halt … almost like hitting a brick wall.

How long will it take for property values to stabilize? Too much unsold and unlisted inventory remains to get a good grip on the answer to that question. How long until the economy stabilizes and we see wage growth? What if americans start actually saving again rather than spending?

These are all important questions. Until we have the answers, you can bet on a long, deep, painful, paradigm shifting recession.

Hold on to your Cash … there are bargains ahead !!

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