The troubles in the financial markets over the last year will lead to a new era of thrift, and this will be radically different than the past 20 years of excesses as consumers change their habits. Consumers are already retrenching and increasing their savings amongst the economic uncertainty, but I think these changes portend an even deeper shift in personal behavior.
This is a story of three successful "40 somethings" who are cutting back not because they have to but because they want to. They have given up on the markets -not because of losses - but because it has failed them. These people are cutting back because they sense a long period of economic malaise that won't be fixed by increased spending or a new bailout program. And they believe that the economic malaise and dislocations will result in opportunities far off in the future, and they want to be in position, with cash on hand, to take advantage.
So there you have it. Tom is downsizing to simplify his life. Pete is cutting back to improve his balance sheet. Steve is saving more because he recognizes that the current dislocations in the economy will create opportunities. These folks don't have to cut back but they want to, and this dynamic isn't recognized by the pundits on Wall Street. If you listen to CNBC, you get the sense that all our ills will be solved by one more bailout or if not one more, than the right bail out. I got news for you: that game is over. It doesn't matter anyway, I believe the dynamic has shifted in this country from spenders to savers.
Furthermore, the financial pundits seem to imply that savings is only for those on the bubble - those who have lost a job or might lose one as they are downsized by their company. But what I see and hear is that financial prudence is for those who have the means as well and have been somewhat immune to the recession. There is no question that people are cutting back, and it just isn' t people who are on the bubble or who live their life in fear. People with means are pulling in their horns too.
The financial markets have failed investors. There has been a tremendous transfer of wealth from Main Street to Wall Street. Investors have made "bubkus" in this decade, yet CEO's and insiders have made millions for driving their companies into the ground. Wall Street has done little for shareholders. Tom, Pete, and Steve recognize that if they had acted so irresponsibly in their professional lives they would have lost their right to practice medicine or law. They are disgusted with the markets and bailouts to help those who acted recklessly and irresponsibly. They have turned a deaf ear to the financial pundits who clamour on about the need for just one more bailout to fix everything. Tom, Pete and Steve are taking matters into their own hands. Wall Street matters little as the wheels for a new era of thrift have been set in motion.
Friday, March 06, 2009
The Dynamic Is Changing
Trying to reinflate the good times is akin to a cargo cult. The reason: