The latest in “It’s different this time” thinking comes from Tobin Smith at Change Wave in an article called Doom And Gloom Rehab.
Remember The Super Spenders
Here’s one more thing people don’t understand about this economy. We have what I would call the super spenders — the top 10%-20% earners in the United States. This group accounts for almost 90% of our economic activity when you talk about anything related to discretionary spending.
We’re talking about spending on a second home, new TVs, putting the kids through college, etc. If you study that group — people over the age of 30 with some college — the unemployment rate is about 1%.
And the fact of the matter is that at the low end of economic spectrum, if they’re having financial difficulty because their mortgage rates have gone up to the point where they can’t make them, I mean, you know, as dreadful and heartbreaking a story as that is, from a pure economic standpoint, it really doesn’t matter as much to the overall economy.
So what you really want to worry about in 2007 is how the super spenders are doing in the American economy. And if you look at those numbers, you’ll see they’re doing great, and that’s why this economy continues to grow and continues to have this soft lading — and is getting ready to rebound again.
But I really think there’s a group of doom and gloomers out there that need to come to my rehab center and get adjusted to current reality in the global economy, and not keep overlaying what happened in 1985 and making that comparison.
From an economic standpoint, that argument really doesn’t hold water. Remember, we also have about 2 billion more consumers in the world than we had at that time. Thank you, China. Thank you, Russia. Thank you, India.
We have a huge amount of capital — I mean the world is literally twice, almost three times as wealthy as it was then.
And we are just so much bigger, so much more powerful, so much more insulated from these specific shocks, that we just don’t have that down risk. And that reality has really not been priced into stocks because I think when people understand how much safer from an economic standpoint this overall global economy is, they’ll probably do one thing — and that’s price stocks even higher.
So, doom and gloomers, there’s plenty of room in my rehab program. You guys are out of touch with reality, and you can use my help.
New Wave Thinking
- Only the top 10% of the country matters anymore.
- If the super spenders are doing OK everything will be fine.
- Bankruptcies and foreclosures at the bottom 90% of the population are “heartbreaking” but otherwise meaningless “from a pure economic standpoint“.
- The world is “almost three times as wealthy” as before because there is “a huge amount of capital“.
- We are insulated from risk because we are bigger and more powerful.
- “When people understand how much safer from an economic standpoint this overall global economy is, they’ll probably do one thing — and that’s price stocks even higher“.
Anyone who readily dismisses what 90% of the US population is doing doesn’t know much about economics. In addition, these new wave thinkers in general (and they seem to be everywhere) are clearly confusing money with wealth. It is equally clear they do not have a firm grasp on reality when it comes to either risk management or the valuation of stocks.
Thanks Tobin for the laugh of the day.
Mike Shedlock / Mish/