The New American Austerity: Getting By with Less Debt and Less Money. In What Sectors are Americans Spending Less Money?
The Census Bureau reported on Wednesday that for the month of April retail sales came in at $337 billion, a decrease of 0.4 percent from the month before. The market reacted to this news and headed lower. If we pry into the data beyond the headline number, we will see that retail sales are actually down by 10.1 percent from April of 2008. Now why the market is stunned by this news should be the bigger headline since 24,700,000 Americans are unemployed or underemployed, it would logically follow that more and more Americans are having to tighten up their budgets. Many Americans are quickly realizing that austerity is now the way of life.
Following the Failed Japanese Economic Playbook: 10 Charts Comparing the Japanese Lost Decade to the United States.
Even as early as last year, anyone trying to compare the circumstances of the United States with the lost decade in Japan appeared to be out of line with mainstream economist and the media. Yet if this financial crisis has taught us anything, it is that the experts can be wrong by a wide margin. Given our recent economic circumstances, Japan style stagnation is looking more and more likely. Even the media is now using the phrase “zombie banks” in reference to banks that were kept artificially alive during the Japanese lost decade. Noble Prize-winning economist Paul Krugman had this to say recently in Beijing:
24,700,000 Unemployed or Underemployed Americans: Job Losses Accelerate with 6 million unemployed over last year. Real Unemployment rate now at 15.8 Percent.
It is hard to believe what is taken as good news. 539,000 jobs were lost in April yet this was taken as a positive because it wasn’t 600,000. Forget about the fact that the revised number for March was moved upward to 699,000 from an initial 663,000. So it may be the case when the final number for April is calculated in June, we might have another 600,000 job loss month. The market is continuing on its upward surge with the S&P 500 now nearing a 40% gain in 2 months. This market volatility and surge is indicative of an unstable market. The fact of the matter is, when we total up all of the unemployed and underemployed we find that close to 24,700,000 Americans fall in this category.
S&P 500 up 34 Percent in Less Than 2 Months: S&P 500 went down 38 Percent for all of 2008. So why are we Still Down 42 Percent from the 2007 Peak?
We are witnessing one of the strongest bear market rallies in history. This kind of market volatility only rears its head during extreme environments. One quick fact many market watchers will realize is that if you lose 50 percent of your portfolio, you will need to have a 100 percent gain to break even. How so? Look at it this way. Say you have $100 which falls to $50, a 50 percent decline. A 50 percent increase will only put you up to $75, $25 short of the original $100. That is why even though the market has rallied a stunning 34 percent in 7 weeks, we are still down 42 percent from the peak reached in August of 2007.