A consumer driven recession is arriving in conjunction with broad based price increases, a weakening dollar, job-losses, stock and property price declines, a lack of credit from banks, and high consumer debt levels. Like an attack from multiple angles, this will take out of the box navigating. GE, a bellwether for the world economy missed its earnings. Semi-conductor manufacturers have begun large layoffs in a year they are supposed to begin investing –worrisome. The only sectors in the US economy that added jobs were health-care and education. Also, corporate defaulted debt sales increase, suggesting banking problems have spread to companies at large, and it was with good reason companies stopped trading debt six months ago. UK home prices recorded their largest drop since 1992, showing housing trouble on the shores of Europe. The UK consumer, like the US consumer, has a lot of debt, which means UK may follow US more closely than other nations. Both the US and the UK are cutting FED rates. The Euro, meanwhile will not cut rates because of record inflation, however inflation now is a global event, especially food inflation. Slowing down Europe may not help this. Commodities are at all time high prices. And the US dollar is diluted adding to inflation and weakening any action the US government could take. So house prices and stocks will go down while everything else gets more expensive. People have less cash as prices go up. So people will stop spending, and ultimately, the economy is based on people. So a consumer recession is the worst even if it is a pride filled slow progression.
2QBank earnings are still not all in, but no one has had good news. Some suggested we will be in a downturn for the next year. Many announced still more large sales of debt to prove they are at the federally mandated level of loan/loss. It seems as though nvestors feel that they will not go bankrupt. Morgan Stanley reported that the financial downturn will last well into 2009, but they also claimed to be making record profits on trading. I believe a sell-off should be evident shortly simply because the situation is getting worse, not better. The new lows to come, however, will be a time to buy, but it might be a protracted struggling affair.
But what to buy? Most industries finally tie into consumer spending, so getting out of highs like YUM are a no brainer. If a consumer driven recession sets in everything from clothing to electronics, from airplanes to commodities will go down too, however. The US government doesn't have much money left to spend on defense. Maybe health: medical expenses are mostly covered by insurance, and they are not always what one needs, but often health is least related to pleasure. Adding to health-care's upside potential, stocks here have been depressed since the dot-com bubble. Especially if Hillary does not get the nomination, health-care stocks could become a safe repository for cash. And they could be hit with speculative inflows. Especially in the rich world, a large swath of baby-boomers are retiring now.
