market folly

Next up in our series of notes from the Alpha Hedge West Conference is a panel called Condition of the Consumer & Challenges for the Investor as the Economy Expands.  It featured Joseph Brusuelas, Senior Economist at Bloomberg and Kristin Bentz, Executive Director at PMG Venture Group.

Condition of the Consumer & Investor Challenges 

"It is worse than you think"

Economic outlook is historically weak.  Economy is sluggish.  No escape velocity. Output gap of 6%.  For years pattern of unemployment rate similar to employment divided population.  Correlation broke down with recession.  

Low wage bias.  Student loan disbursement up a lot.  Q1 2003 roughly $250B, now almost $1T.  Student debt being used for study of subjects that don't pay much.  

Middle class disappearing.  People moving down to dollar stores from JCP, Sears, Walmart, etc.  Loss is real wages driving trend.  Trading down.  

Economy appears to be getting better, but really, the 1% is driving growth.  Recovery not broad based.  Wealth effect of Fed is benefiting top, but not trickling down.  

Spending has recently moved up in an unsustainable way.  "Layaway is back."  If deleveraging is over, the economy is going to come back.  Actually, deleveraging is coming from housing defaults.  Drivers of capital spending are autos and student debt.  

Lots of underbanked.  Amex & Walmart team up for underbanked ("Bluebird" product).  25% not banked.  Pawn shops thriving.  

Worldwide, US doing ok compared to Europe and Asia.  Asia is struggling.  Weak to poor outlook 12 to 18 months out.  

Yellen likely to replace Bernanke as the first female Fed Chief.  $140B tax hike at start of year.  Budget gap is closing now, but set to spread again in 2018.


Be sure to check out the rest of our summary of the Alpha Hedge West Conference.