October 5, 2011
In normal times, one class of investment goes down in value while another goes up. But recently, even gold started moving in the direction of the stock market, namely down. Evidently we’re not in normal times.
Real estate is starting to look as if it will be a bad investment for a generation. Municipal bonds appear riskier than ever. It’s scary to hold cash if your bank has been misbehaving and you have more money in your account than the government insures. How about investing overseas? No thank you. Meanwhile, serious people are predicting that the government will allow inflation to increase as a way of eroding the value of the national debt.
So what does a rational, employed person with some extra money do? I think consumer spending is on the verge of spiking as high-income people decide they’d rather buy some nice things than lose money in sketchy investments. In other words, the horribleness of the economy is the very thing that will make it self-correcting. I could summarize the idea as “Screw the stock market. I might as well buy something.”
There’s a “capitulation stimulation” coming soon. In this context, capitulation means investors give up on investing, or at least love it less, and decide to spend more money on new cars, furniture, phones, and that sort of thing. If you buy a new TV, you have something you can enjoy. If you invest, all you end up with is less money. When being an investor starts to look irrational, overspending becomes the new rational.
Yeah, yeah, I know. Savvy investors can make money in any sort of market. But those folks are the exception. Your average doctor and small business owner aren’t that clever. Their money is piling up in bank accounts with no place to go. I think the dam is about to burst. Spending on high end items is about to explode.
With 9% unemployment and a general slowdown of the economy, half of the country has no extra money to save or invest. But the folks at the top have plenty. And they have no idea what to do with it.
The well-off won’t totally stop investing. What I’m predicting is more of a general wallet loosening along the lines of buying new cars sooner and booking slightly more expensive vacations. With any luck, that will be enough of a stimulation to goose the economy and set us on the path to recovery.
I woke up feeling optimistic today.