The Consumers who Emerged in the 1950s have Disappeared 

In December of 2008, I wrote an article “The Boogeyman is Deflation” on deflation and why I believe that it poses a much bigger risk than inflation to the U.S. and world economies.  Many analysts and economists especially those on CNBC have scoffed at those who have concerns about deflation. 

Friday’s (August 15, 2009) announcement on the Consumer Price Index (CPI) confirms my suspicions as the CPI declined by 2.1% when compared to year ago CPI numbers.  The number was the biggest decline for CPI in 59 years. 

Investors should be concerned about the 2.1% number because it hides the reality that is being hidden by the stimulus, which has been provided by governments around the world.  These stimulus packages have subsidized the increases and the maintenance of prices of goods and services that are provided for some industries.  However, there are many that are taking the brunt of price declines because they are not subsidized.  Take the Hotel Industry.  Its prices were down by more than 3% for the month of July and have since declined by 9% from their peak.

The week just ended also was not a good one for retail sales.  On Thursday August 14^th, Wal-Mart (NYSE:WMT) reported a decline in its quarterly revenue as compared to its year ago revenue.  Earlier in the week the Commerce Department reported that retail sales for July fell by an unexpected .1% versus an expected increase by economists of .7%.  The decline in retail sales also supports my position on deflation as they have fallen to about $300 billion after reaching their peak of $340 billion.  This represents an unheard of 12% decline.  Those pundits who believe that the consumer is coming back is crazy.   

Finally, the University of Michigan Consumer Confidence Survey results were also released today.  It fell unexpectedly by 3 points from 66 to 63.  Even with the fall a majority of the respondents who were surveyed stated that their financial position had improved over the recent period.  To have consumer confidence falling while those who are being surveyed are saying that their financial conditions are improving is not an oxymoron.  What the economists and analysts have not figured out is the word “save” has a double meaning.  To save means (1) to put away cash for a rainy day and (2) to spend less.  Unfortunately, most of those who are participating in a bear market rally for the ages do not understand that the consumer has disappeared and has been replaced by the typical saver who emerged from the Great Depression. 

To learn more information on the eighth Super Bear market since 1802, that I expect will last until 2015 and for my blogs and reports go to http://www.bearmarketnavigator.com.