Zombie Consumers

It's close to midnight
something evil's lurkin' from the dark
under moonlight
You see a sight that almost stops your heart
You try to scream
But terror takes the sound before you make it
You start to freeze
As terror looks you right between your eyes
You're paralyzed

'Cause this is thriller

Michael Jackson - Thriller

A friend forwarded todays article in the WSJ "Zombie Consumers May Chomp Into Growth" ,which naturally got me thinking about scary things. The article talks about how American consumers are "walking economic dead". It mainly focuses on the fact that two years after the recession has ended (you got the memo, right?), the US consumer still has debt equal to 120% of their disposable personal income. This debt overhang will continue to be a major impediment to economic growth.

Some other frightful facts:

According to Zillow, 28.4% of all mortgages are underwater (owe more than the house is worth), and 38% of those with a home equity line are underwater.

Almost 30% of people with 401-K's have borrowed against their savings, up from only 14% in 2009. These are desperation loans. If you lose your job the balance is due within 60 days or is subject to a 10% early withdrawal penalty.

Student loan debt of $900 billion is now larger than credit card debt. The average college graduate has about $25,000 in loans. 

The next couple of graphs show just how different this past recession has been:

Something Is Amiss:

I've commented on these graphics many times in the last couple of years, and it's personally very frustrating to see so little progress on so many key economic fronts. While I've been critical of the Fed's QE2 and ZIRP, I think the Fed has done everything in its power to at least stabilize the economy. Fed Governor Fisher was on CNBC this morning and said that basically the Fed has done all that it can, "The gas tank is full, but now we need someone to step on the accelerator." He's talking about the need for our elected officials to stimulate corporate growth. This can still happen, but it's going to take action. We can't have elected officials busy tweeting photos. Unfortunately I think we will need a serious calamity before we get them to act.

One Final Graph --- A Very Serious Graph:  

This graph shows how the wealth disparity here in the US has ballooned in the last 20 years, to its highest levels since the roaring '20's. The top 1% account for 18% of total income. I used to believe that the wealth gap wasn't a big deal, as long as I found a way to get in that top 1%. I've grown to realize that all democracies need a happy median, these wide discrepancies are extremely dangerous. We need to work hard (NOW) to narrow this gap, not by taking money from the top (taxes or wealth redistribution), but by bringing growth opportunities to everyone. Why is this so important? Democracies don't survive very long when such a small percentage control so much. Remember France from 1793-1794, when nearly 40,000 nobles, wealthy, and their friends were put to death via the guillotine, for "crimes against liberty."

'Cause this is thriller
Thriller night
There ain't no second chance

Be careful out there, and keep the lights on,

Chris Wiles, CFA

412-260-7917

www.rockhavencapital.com

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This article contains the current opinions of the author but not necessarily those of the Rockhaven Capital Management.  The author’s opinions are subject to change without notice. This article is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.