Don't Forget the Consumer, and the Kids Too

Includes: DIA, QQQ, RTH, SPY
by: Richard Shinnick

Financial addict that I am, I usually scan most major and many minor financial news sites and I watch a lot of CNBC. Something has been missing lately. The consumer is getting forgotten. Banks, Bear Stearns, Ben Bernanke, and credit spreads get all the media these days. What about old Joe Six and his three kids, remember him? Joe is 70% of the economy! Financially speaking, how is Joe doing?

Let me break it down for you,

  1. Joe got a 4.5 % raise this year, not bad considering that his buddy who is in real estate is making no money and is in foreclosure.
  2. Joe is paying $94.00 to fill up his Suburban and $52.00 to fill up his second car, the little foreign job. That is about double what it cost him a couple of years ago.
  3. Joe's neighbor just told him that another neighbor's house sold for $360,000, which is what houses were going for in 2004. Joe has a first mortgage for $309,000 and an equity line for $75,000 that he took out two years ago for emergencies. As it turns out, there have been $42,000 in emergencies since then, but he has $33,000 left so he still has a little "cush" as he calls it.
  4. Joe's wife keeps complaining that groceries cost more and more every week and it seems to Joe that despite his raise he is still falling a little behind every month.
  5. Joe just opened his 401k statement,.and what was once $72,000 is now $60,000. Bummer. Joe is 42 so he figures he has plenty of time to make it up.
  6. Both of Joe's boys want to play football this year and the registration fees are up to $400.00 each. That is going to be a little tight. Joe's neighbor Alex kept his kids out of baseball this year because he just couldn't afford it.
  7. The credit card bill just came and Joe still has a $7,700 balance left over from Christmas and the vacation they took last year. Things sure seemed better last year when the house was worth $475,000. Joe felt like he had a lot more "cush" back then.
  8. Joe's neighbor across the street is selling his house and it has been on the market for 6 months with no takers. Joe hates the obnoxious red "Price Reduced" sign that he sees every day out of his living room window.
  9. Joe is a social studies teacher and has heard that the state budget is going to be cut back 10% and the district where he works has already made it known that major budget cuts might be forthcoming.
  10. Unbeknownst to Joe, Megabank, Joe' equity lender just mailed him a letter informing him that due to material changes in the housing market, it is declining to make further advances on his home equity line of credit. Joe will get the letter Tuesday. No football for the boys this year.

Silly anecdote? Well, with all of the "financial" articles I see on SA, I just thought I would remind everyone what it is really is all about in the long run. It is all about Joe Six and his kids, you and yours, and me and mine. How are things in the real world away from Bear Stearns and Ben Bernanke and short covering? Look around and ask around, that is a question you can answer for yourself. The answer to that question should always guide your investments. Pay attention to what is happening not what the media "says" is happening.

Here is a little real world "what is happening" for you. I threw a little snipit in there about registrations for youth sports being down. Guess what? They are down up to 10% in many areas and the volunteers and administrators that run the leagues blame it on the economy (first hand and anecdotal knowledge from the business I am in). So Mr. Bernanke, forget about the credit markets, I hope that your 75bps helps the kids get back to playing ball next year because the number of kids registering to play baseball is about the most important economic indicator that you can imagine, isn't it?

Ok, we will now resume our regular programming.