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How Do You Get a Recovery Without the Conusmer?

Consumer credit plunged by $21 billion in July, taking it down to the lowest level since WWII. The last time it was this low wartime rationing was in effect and a lot of individual purchases ended up in a booming black market. Instead of buying that new Cadillac Escalade with the chrome wheels, they are paring down debt. Gun shy credit card companies are happy to take the money, and American express has been cutting back limits in zip codes with the weakest housing like California and Florida, even for current accounts. Banks have gone back to lending only to people who don’t need the money. The savings rate has gone from zero to 7%, on its way to 10%,  not exactly a great springboard for an economic boom. The catatonic consumer is the main reason why I have not played equities from the long side since May, preferring instead to dabble in commodities. With 70% of GDP in shrink mode, any move up in the indexes is just fluff. For more reasons on why you should break into an ugly rash before buying stocks at these levels, look at Martin Hutchinson’s piece by clicking here