-- Posted Sunday, 4 February 2007 | Digg This Article
By George J. Cocalis
Brewer Futures Group, LLC
Consumer spending is and always has been the backbone of the American economy. Our society encourages us to spend more and more every year. This is most evident during the all important Christmas season or should I say the “fourth quarter season.” Consumers are bombarded with advertisements, sales, and easy form of payment schedules. This has created a “buy now-pay later” attitude that has burdened the consumer with massive debt, and this mindset might push America’s consumption-based economy over the edge. One of the means in which the consumer has been able to continuously spend more than they earn is through the easy debt of credit cards. As a child I remember asking my parents if they could buy me a toy whenever I saw one and the response was usually “did you ask me if I have the money”? If not, then I had to wait until my father got paid. Where as today the response is, “I’m short on cash, but I still have a little room on one of my credit cards.” People are now in a revolving debt cycle that they will never escape, and with the government pressuring credit card companies to raise minimum payments to help the self-battered consumer get out of debt quicker, this might actually hurt them because they cannot even pay what they currently owe!
According to CreditCards.com, 45% of American cardholders were only making minimum payments in 2004 (up from 42% who did so in 2003), and the average household credit card debt has increased 167% between 1990 and 2004! This will force American consumers to focus on paying their credit obligations and while doing so will not have available funds or credit to spend and this will put an abrupt halt to our economy.
How long can we keep spending money that we do not have? According to the Commerce Department, the savings rate fell (for the first time since the Great Depression) into negative territory at minus 0.5%, meaning that Americans not only spent all of their incomes last year but also had to dip into previous savings or had to increase borrowing. In other words, the typical American spent $100.50 for every $100.00 of take home pay. The negative savings rate cannot be sustained over the long run. Most of the baby boomers are still in the workforce and are in their prime earning years and the savings rate should be going up! Especially with 75 million baby-boomers set to start retiring in 2008, needing added savings for medications and unforeseen expenses, yet plasma TVs, granite countertops, SUVs, and expensive dinners are of priority!
But something else is happening that does not bode well for the U.S. economy. An important shift within the global economy is taking place: China is on course to replace the U.S. as the consumer of choice and this has HUGE implications for Americans because China will no longer depend on the American consumer to purchase Chinese goods. When this occurs, China will not need to purchase billions of U.S. Treasuries every day to support the dollar or, more to the point, support America’s outrageous spending habits. The global consumer is playing “catch-up with the United States,” and quickly at that.
In a study conducted by Credit Suisse First Boston, the Chinese consumer will likely have displaced the U.S. consumer as the engine of growth in the global economy by 2014.
The study also projects that there will be 151 million Chinese urban households earning more than 10,000 U.S. dollars per year by 2014 versus 4 million at the end of 2003. There is a new consumer class in China and it is made up of young spenders who are not like their savings-minded parents. They are trendy, have nice jobs, shop at malls, eat at restaurants, and hang out at clubs. They own apartments, cars and spend a lot of money when they travel abroad - a far cry from the past when everybody dressed exactly the same! Keep in mind that the Chinese are not trying to become westerners; they see that as a “dead-end,” says Tom Doctoroff, Greater China CEO, J Walter Thompson. He goes on to state that, “China wants to be international and what they really want is to be modern.” This new class of spenders is only a small part of the overall economy and not all Chinese are experiencing this phenomenal growth but nevertheless, the average personal income wage has risen 24% in the last three years, most rapidly for the younger class. The annual salary on average is $10,000, which is the equivalent of $40,000 in the U.S. It is estimated that about 30% of the Chinese population is experiencing this rapid salary growth, but remember that less than 25% of all the Chinese is still more than the entire population of the United State!
The emergence of the Chinese consumer is likely to be one of the most powerful economic events in the next twenty years! China will affect all industries from automobile sales (today, China has only 10 million cars on the streets, about the same number that the U.S. had in 1930), to travel, where the Chinese purchase roughly 12% of their luxury goods when they travel abroad. Even sales of dairy products are booming, though most Chinese are lactose intolerant, according to Joe Hatfield, President and CEO, Wal-Mart Asia.
With the combination of China’s new found wealth and America’s new found underdog status it is hard to dispute that we have crossed into another historical era right before our very eyes. But, I have noticed recently that more eyebrows are being raised after the facts have been revealed to them and it is my hope that they will make the necessary adjustments soon. I started making my own adjustments, besides owning and trading gold. This past shopping season was very different for me personally; instead of purchasing electronic devices, clothing, gift certificates and any other item I happened to encounter, I purchased as gifts: gold coins, mint baseball cards, a painting, higher-end comic books and opened a small futures account.
For those of you interested in receiving your Free Gold Trader's Package or information on opening a Futures Account, please Click Here.
More to come…
George J. Cocalis
gcocalis@BrewerInvestmentGroup.com
Brewer Futures Group, LLC
A Division of Brewer Investment Group, LLC
200 S. Michigan Avenue, 21st Floor
Chicago, IL 60604
(312) 896-3979 Direct Line
(800) 971-2709 Direct Toll Free
(312) 896-3920 Fax
gcocalis@BrewerInvestmentGroup.com
www.BrewerFuturesGroup.com
Disclaimer: Futures and options trading involves substantial risk and may not be suitable for every investor. The valuation of futures and options may fluctuate, and as a result, clients may lose more that their original investment. The impact of seasonal and geopolitical events is already factored into market prices. In no event should the content of the following message be construed as an express or implied promise, guarantee or implication by Brewer Futures Group, LLC or any of its affiliates that you will profit or that losses can or will be limited in any manner whatsoever. Past results are no indication of future performance. Information provided in the following message is intended for informational purposes only and is obtained from sources believed to be reliable. This information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.
-- Posted Sunday, 4 February 2007 | Digg This Article
