There's never a good time to release bad news about consumer spending and
income, but it's even worse on the day that's likely to witness Congress vote in
favor of the
$700
billion bailout for the U.S. financial system.
Spending that mountain of cash to salve so much self-inflicted pain will
inspire no one, least of all investors. Yes, it may provide a short-term bump in
prices, maybe. And it may keep the apocalypse at bay, maybe. And the government
may get the money back when it resells the assets down the road, maybe. But in
the long run, it's not a productive use of capital. Mopping up spillage never
is.
For every argument in its favor, it's easy to worry about the potential for
negative blowback. Did we forget to mention that we're in uncharted territory
here?
Adding to the woes about the limits of Washington's debt-financed restoration
of financial order is news this
morning that disposable personal income dropped 0.9% last month, the third
in a row. No wonder, then, that personal consumption expenditures were unchanged
in August from the previous month.
"With the labor market remaining very weak, slow to negative growth in
disposable income will most likely plague the consumer for at least the next six
months," Adam York, an economist at Wachovia Economics Group, told
CNNMoney.com.
It's hard to see the outcome as anything other than recession. "It looks like
we are poised to see a real-term decline in personal consumption and that will
likely result in a negative GDP number in the third quarter," James O'Sullivan,
economist at UBS Securities opined
to Reuters.
As we write, the S&P 500 is off by nearly 4%. Meanwhile, the
flight-to-safety instinct is very much humming today. Demand for the 10-year
Treasury pushed its yield down sharply to around 3.65% in early afternoon
trading, New York time, down from 3.83% at Friday's close.
The problem at the moment is the unknown. The haziness on the future—future
earnings, future real estate prices, future this, future that—is weighing on
just about everyone. It's going to take time—several weeks, at least—to get a
halfway decent guesstimate of what the government's getting for its $700
billion. Add to that the question of how much patience the global markets have
for yet another big borrowing binge by the U.S. And what will all this do to Joe
Sixpack, and to corporate profitability, and real estate prices, and on and
on.
No one really knows, and the depth of the ignorance and the magnitude of its
implications have rarely been greater.
Yup, it's a Monday alright.
