Outlook 2013: Americans Are Going Broke

Dec. 31, 2012 4:32 AM ETQQQ, XLY, SPY385 Comments
Colin Lokey profile picture
Colin Lokey

With 2012 at an end and the new year upon us, pros and amateurs alike are busy analyzing the trends that defined the outgoing year and going on record with their predictions for the coming 12 months. As I peruse the myriad reflections and prognoses, I continue to come to the same conclusion: if stock prices are connected at all to the general well-being of the U.S. consumer (and they certainly should be related given that consumption accounts for three quarters of economic output), the path that lies ahead for U.S. equities might prove to be quite arduous.

In a recent article, I suggested that because private sector wage growth in the U.S. is running well below the two decade average and because real disposable personal income growth is stagnant, the ability of the average American consumer to support the economic recovery via spending will be constrained for the foreseeable future. The counterpoint to this argument, which I highlighted on my website, comes courtesy of the Reformed Broker's Joshua Brown who notes that betting against the resiliency of the U.S. consumer can be any great economist's Waterloo. Brown points to the fact that the Consumer Discretionary Select Sector SPDR Fund (XLY) staged a "rally on top of a rally" in 2012, outperforming the S&P 500 by 30%.

To me, it isn't really a matter of betting against the U.S. consumer's resiliency -- framing it thus seems to suggest that it is the spirit of consumerism in question. While Americans will no doubt want to spend more, it appears that economic realities will eventually conspire to inhibit that consumption. For example, Jeff Gundlach, CEO at DoubleLine Capital, recently highlighted the following chart which shows wages in the U.S. as a percentage of GDP:

Source: DoubleLine

The above graphic is astonishing as

This article was written by

Colin Lokey profile picture
Poli Sci undergrad. MBA. Repo (market) man. Geopolitics junkie.

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