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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Jon Koplik who wrote (7206)	9/29/2005 5:56:23 PM
From: John Pitera	Respond to of 33421

Jon, the word has been that the US Consumer is tapped out two hedge fund managers interviewed in Barrons for the Sept 5th issue were commenting how the consumer is broke and that savings rates have gone negative from a positive 9.5% in 1989. (part of their interview) ------------------------- Barron's: What makes a couple of very private guys want to go public with their views? Mikles: We think we are at a huge inflection point that needs to be talked about. It is really misunderstood, or as we like to say, under understood. We think we've got something very important to say and are willing to say it for the first time in a very long career. Collectively, we've been in the securities industry 45 years and we've been in the hedge fund business as partners for 15. Q: Why do you think we are at an inflection point? Mikles: Bottom line, the consumer is broke and he doesn't know it yet. But he is about to find out. All the buckets that propelled consumer spending are empty now, whether it is the *increase in mortgage debt, the increase in consumer debt or the reduction in the savings rate. No one statistic will tip the scale at the end of the day. But one very obvious and very curious statistic is that we have dipped into a negative savings rate for the first time*. That is not only unsustainable, it is sustainable only for a few months. That's important to note because it tells you consumers are borrowing money to make debt payments. The U.S. consumer has become payment driven. He is driven not by the aggregate amount of debt he possesses but by the amount of the payment. And now the consumer has not only taken his savings rate to nothing, it has turned negative. Miller: Every month there is some increase in consumer borrowing that has to occur just for the consumer to stay level. The consumer is treating his balance sheet much the way the government is treating theirs, but, of course, the consumer can't create currency like the government can. The point is the consumer cannot continue to borrow to make his debt-service payments for very long. How did we get here? We got here because of the huge differential between wage growth and what we spend and what we consume.