Pessimism in Canada

I mentioned yesterday that they economy would react new equalibrium where demand was fueled by savings and not credit. Today an interesting study was released in Canada on the subject of optimism in and consumption patterns.

Here are the findings -

"What is different in this recession is that all the trends seem to cross
all income levels," says Michael Marzolini, Chairman of POLLARA. "Fundamental
shifts in consumer behaviour, habits and motivations are emerging not only in
lower and middle income families, but even to some degree amongst higher
income groups. This is unique in that the fear and perception of an increased
cost of living and a sense of falling behind is spanning all age and income
levels."

http://www.newswire.ca/en/releases/archive/April2009/30/c6714.html

The massive layoffs and cutting of Industrial Capacity Utilization may have put the economy into a position where it will grow over the next few quarters or years, but the trend for some time will be a gradual closing of factories and high levels of unemployment.

You will need to be saving more than you are used to doing. You need to understand that at some point in the next few years, it will become apparent to Baby Boomers that the entitlements they have been promised will not arrive. Either your Social Security checks and Medicare payments will be smaller than you thought they would be, or they will grow at a ridiculously slow pace relative to inflation.

As Baby Boomers realize that they will have to self-finance the majority of their retirement lifestyle, they will sell assets to raise cash and lower their consumption. Who are they going to sell those assets to? Generation X is poor and small in size, relative to the Baby Boomer and The Echo Boom, while numerous, will not have the income to finance purchasing vast sums of stock and real estate sold by their parents.

Therefore, there is a natural bias for asset prices will fall (in real terms). There is also a natural bias for significantly diminished consumption.

I got a 1-year Bible this year and have been reading it daily. I consider the bible more parable than fact, so to me its lessons are more about the universal similarities of human behavior than the religious component. I figure a 2,000 year old book can teach me a lot about the human experience.

I am reading the story of Joseph in the Book of Genesis. Joseph took over the day to day operations of Egypt before 7 years of great bounty. He had the wisdom to safe enough for the 7 years of famine that he knew would follow. He suffered great hardship to get to the place where he could make the critical decisions to save the Egyptian people from famine, but he understood that he was there for a reason.

The Gilded Age of 1982 - 2000 is over. It was fueled by excess credit and will lead to a time of great financial dislocation. We have already seen two of the most brutal Bear Markets in history. About 15% of our countrymen cannot find work. The standard of living of the generation now hitting the work force will be well below that of their parents.

SAVE MONEY while you can make it. Our endgame is either default due to lack of capital to pay our debts or massive inflation and the collapse of the Dollar. Or war. None of them are good, so you need to save money and protect it when times turn bad again - as you know they will.

We enter this new reflation of asset prices withe MORE DEBT than when we entered the last one in 2002-2003. None of the fundamentals exist to justify a protracted Bull Market. Prices may rise due to inflation, but the real guages of economic prosperity will lag past economic recoveries.