DUE TO BUSINESS TRAVEL, BREAKFAST WITH DAVE WILL RETURN ON
MONDAY, SEPTEMBER 14

IN THIS ISSUE

• Wage deflation in the U.S.; usage of grocery vouchers, as well as other supplements to the household budget, are on the rise

• Tremendous underemployment; the U.S. economy is actually 9.4 mln jobs short of being at full employment

• Money and money aggregates in the U.S. are now deflating

• Leading job market indicators in the U.S. are not looking good

• A bullish consensus; take a look at page 21 of this week’s edition of Barron’s

• More bank failures in the U.S.; there are now 85 financial institutions that have failed this year

• Another taxpayer-funded bailout?  The era of free money is back

WAGE DEFLATION

There are so many headwinds confronting the U.S. consumer it’s not even funny.  For a look at the new harsh reality of soaring usage of grocery vouchers, as well as other supplements to the household budget, have a look at the grim article on page 2 of the weekend FT (Families Take Up Food Stamps as Wages Shrink).  On the very same page, there is an article on the latest trend in terms of 21st-century breadlines — Middle Classes Turn to Car Park Handouts.  To think we still get asked why we aren’t more bullish over the outlook for spending.  Truly amazing.

TREMENDOUS UNDEREMPLOYMENT

The U.S. economy is actually 9.4 million jobs short of being anywhere remotely close to being fully employed, which is why any inflation that can somehow be created by the Fed is simply going to be unsustainable noise along a fundamental downtrend in pricing power.  After last Friday’s report, we have now lost 6.9 million positions that have been cut during this recession and we have to count in the additional 2.5 million jobs that need to be created — but never were — just to absorb the new entrants into the labour market.  The ‘real’ unemployment rate is now 16.8%, so to suggest that this down-cycle was anything but a depression is basically a misrepresentation of the facts.    We will certainly take note that (i) the ECRI leading index is soaring to the moon and (ii) the August chain-store sales data came in better than expected.  But when you look at the data and the constraints on pricing power, it does suggest that the outlook for profits is far less robust than the markets have discounted — looking at the August retail sales data, it is quite apparent that merchants were very aggressive in their price points and value-oriented chains were the big winners last month.  Be that as it may, the year-over-year comps are likely looking better now that we are coming off the detonated figures of late 2008, and on top of that, the lengthening of the back-to-school season could artificially add about a quarter-point to the September chain-store sales numbers.

….continue reading page 2 of 5 HERE.