19/05: Structural Adjustment Redux
Last June I wrote the following:
Are we prepared as a nation to undergo a change from spending to saving?
How else will we be able to navigate our way through the demographic time-bomb in our future?
If Baby-Boomers are to live comfortably in retirement with adequate income and health care it seems we must increase our saving. How else can we prepare?
Our current approach of saving little and spending more than we earn (both as families and nation) will leave us poorer in the future. As someone has pointed out elsewhere (Bill Bonner at the Daily Reckoning perhaps), a nation or a family cannot get wealthier by spending more.
The investment implications of this coming adjustment are murky in the short term but certain in the longer term. Our future will involve more saving which means less spending. The impact on our nation's businesses may well be significant when this change occurs.
Are we ready?
O. Sam Folin, CFA
June 17 2005
What has changed since then?
Unfortunately not much. Energy prices are much higher. Interst rates are higher. Wages after inflation are a little higher. Home sales are slowing. Home price increases are moderating....soon to fall? Saving is still negative.
In the last eight days the US stock markets have discovered that something is amiss. The headlines would lead you to believe that unexpected inflation (in the recent CPI release) is the culprit. Unlikely. The bond market is the best barometer of inflation expectations and it remains calm, more or less.
Perhaps the market is anticipating a slowdown in consumer spending on consumer goods in order that gasoline might be afforded? Or perhaps families are starting to save?
I do not know. What I do know is that the structural change described last June is coming. It is a question of when, not if.
The investment implications will be profound. Are you ready?
OSF
May 19, 2006
Are we prepared as a nation to undergo a change from spending to saving?
How else will we be able to navigate our way through the demographic time-bomb in our future?
If Baby-Boomers are to live comfortably in retirement with adequate income and health care it seems we must increase our saving. How else can we prepare?
Our current approach of saving little and spending more than we earn (both as families and nation) will leave us poorer in the future. As someone has pointed out elsewhere (Bill Bonner at the Daily Reckoning perhaps), a nation or a family cannot get wealthier by spending more.
The investment implications of this coming adjustment are murky in the short term but certain in the longer term. Our future will involve more saving which means less spending. The impact on our nation's businesses may well be significant when this change occurs.
Are we ready?
O. Sam Folin, CFA
June 17 2005
What has changed since then?
Unfortunately not much. Energy prices are much higher. Interst rates are higher. Wages after inflation are a little higher. Home sales are slowing. Home price increases are moderating....soon to fall? Saving is still negative.
In the last eight days the US stock markets have discovered that something is amiss. The headlines would lead you to believe that unexpected inflation (in the recent CPI release) is the culprit. Unlikely. The bond market is the best barometer of inflation expectations and it remains calm, more or less.
Perhaps the market is anticipating a slowdown in consumer spending on consumer goods in order that gasoline might be afforded? Or perhaps families are starting to save?
I do not know. What I do know is that the structural change described last June is coming. It is a question of when, not if.
The investment implications will be profound. Are you ready?
OSF
May 19, 2006
