Sage Investment Strategies Update 08/15/2009
Is the 5-month long stock market rally over? Should we prepare ourselves for a rough ride downhill? After a 50% run-up since March, the market appears to be sputtering. Why aren’t those consumers, who drive two-thirds of the economy, consuming more? For one thing, it’s hard to consume more when you’re unemployed. Consider that the “official” U.S. unemployment rate stands at 9.4% while the ”real” unemployment rate, which includes unemployed people who have not looked for work in the past month because they got discouraged and gave up, is in the range of 16-17%. Meanwhile, more than 550,000 new people per week are filing unemployment claims. Moreover, as housing prices continue downward, over-extended and highly leveraged homeowners have little or no home equity to tap. But politicians are trying their best to encourage even more consumer borrowing and spending with programs like “Cash for Clunkers” and homebuyer incentives.
Meanwhile, prices are rising (even though official government data says they are falling) and hitting consumers in the pocketbook. For example, since bottomming out in December 2008, gasoline prices have risen an average of $1.00 per gallon nationwide — up more than 60 percent! Utilities are jacking up their rates. My electric utility recently announced a 23 percent rate increase. State and municipal governments are raising taxes to cover huge budget deficits. For example. California enacted a $12.5 billion tax hike to cover part of their $40 billion deficit. It’s no wonder that Friday’s Reuters/University of Michigan consumer sentiment index registered a decline for the second month in a row.
