Daryl Montgomery with an introduction by Jack Kemp

Daryl Mongomery once again sizes up the economy.

I'd like to introduce this with a story about a conversation I had seven months ago at a one of Daryl's New York Investment Meetup Group sessions. This may have been posted here before, but it is worth repeating in light of the current Fall From Grace being experienced by Obama among even Democrats.

The atmosphere at these meetings is friendly and includes people of all political persuasions. At that spring meeting, I found myself sitting behind a an older guy with a pony tail and a baseball cap. At one point, he turned to me and framed a question as if anyone in these meetings not wearing a Confederate flag baseball cap and spitting tobacco must be a "right thinking" New Yorker such as himself.

Mr. Pony Tail asked me, "Are you disappointed in your expectations of Obama?"

I replied, "I had no expectations of Obama."

The look then seen on Mr. Pony Tail's face was priceless, as if someone had just poured a large beer stein full of ice water down the front of his pants. He did understand what I was saying to him and remained silent. He hasn't talked to me since then. I'm not complaining.

Anyway, on to Daryl's latest report, previously posted at www.projectshiningcity.org , a Tea Party affiliated site in New York:

Consumers Lack Confidence, They Also Lack Credit
by Daryl Montgomery

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

Before the Credit Crisis began, consumer spending made up 72% of U.S. GDP.  The current economic numbers indicate that there is little chance that this part of the economy will be recovering any time soon. Consumers have neither the desire to spend, nor the availability of funds to make it possible.

The Conference Board's consumer confidence numbers for January came in at 55.9. The historic average is 95 and somewhere around 90 is considered the dividing point between bad and good. While it is true that the current number is better than the depression level all-time low of 25.3 in February 2009, the readings have been range bound between around 50 since last June. The numbers indicate quite clearly that consumers are in no mood to shop. Even if they were, where would they get the money? 

The dismal job picture with 10% unemployment (not including discouraged workers and people forced to work part-time, which brings the U.S. unemployment number to the 17% to 20% level) is only one reason that consumers won't spend. The latest figures from November 2009 indicate that consumer credit was falling at an 8.5% annual rate. Revolving credit (much of which is credit card debt) was falling at an 18.5% annual rate. The big banks that took TARP money with the understanding that they would increase lending have increasingly cut consumers off.

The lack of consumer spending would have had more serious impact on U.S. GDP figures if large increases in government spending hadn't taken up the slack. Government subsidies have held up the housing and the auto markets, but this is completely artificial and produces only an illusion of economic recovery, rather than the real thing. Investors should keep in mind that no sustainable U.S. economic recovery is possible without the participation of the consumer. Otherwise, no matter how good the GDP numbers are in any given quarter, the improvement will only be temporary.

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