This morning’s US Personal Consumption and Savings stats provided a little shock and awe to the “US Consumer is going away” camp’s short thesis. I shorted the XLY (Consumer Discretionary) ETF yesterday, so I am not particularly enthused with this report myself. Thankfully, I am not in the consensus “savings are going to be the death of this country” camp.
My call on the Savings rate being a headwind for consumer stocks was a 2007-2008 Macro Theme. It was born out of an expectation for the savings rate to go from zero to somewhere in the mid-single digits. Today, if you had a dime for every economist or strategist who is whining about the consumer saving every nickel they earn, you’d be earning a good keep. AFTER the last reported US Savings rate hit a 14-year high, you started hearing that clanging monkey sound of rear-view looking consensus.
Today, what is a monkey to do? Well, now that the savings rate just dropped from that 14-year high of 6.2% right back down to 4.6% I suppose you can hope no one saw the number. Or hope that sequential decelerations on the margin don’t matter to markets. Ah, but hope dear short selling friends is not an investment process.
In the chart below you’ll see the dangers associated with straight-lining consensus fear into a perpetuity. Yes, the American consumer should save more. Yes, they are saving more. Yes, they probably will save more than 5%. But in no way shape or form should you expect them to save at the rate they did in the 1970’s.
Why is that Mr Macro Monkey? Well, I think that’s pretty simple. If you give an American a ZERO rate on their savings. How much do you think they are going to save? While he wasn’t popular on Wall Street, at least Paul Volcker got the conservative American saver a return on their hard earned capital.
Some things are that simple. Give an American banker free moneys, he’ll pay himself a bonus. Teach Americans to save, and you’ll pay this country’s investment pipeline for life. Savings and Investment are interrelated. One perpetuates the other – ask the Chinese about that.
Keith R. McCullough
Chief Executive Officer