Consumers Running Out of Time

By on October 12, 2006

Originally published in March 1999:

INDEXES ON 2/26/99

DJIA 9,306.58

S&P 500 1,238.33

NASDAQ 2,288.03

Editorial

As more and more cracks develop in this bull market, the top is becoming increasingly clear daily. The stock market has been fueled partly by the continued growth of consumer spending. However, there is a limiting factor to this growth, and it is one that economists and market commentators have not considered; yet. It involves the fact that consumers have a limited number of hours in a day to consume.

People are increasingly stressed due to the seemingly limitless choices available for their time. This limit in time is starting to show up in the growth rate of corporate earnings. Overall, corporate earnings are not growing at rates sufficient to justify the prices equities are priced at. One of the reasons earnings have slowed is because US consumers are bumping up against their limit of available hours in a day.

Most consumers, when deducting time for sleeping and working, only have about 80 hours of free time per week. With all of the choices currently available including television, shopping, sporting events, theater, coffee/book shops, the beach/mountains/Disney resorts, and new ones involving computers and the Internet; along with the fact that in many households both the husband and wife have to work to support the quest for materialistic nirvana, it is only natural that there would be some limits to growth based on time. This may be where the next recession originates from.

To prevent a downturn means allowing more people to enjoy the fruits of our economy and that means sharing the rewards more widely and equitably. The only problem is that companies can’t afford to pay low level workers decent wages due to the almost limitless quantity of cheap labor available to their competition in the form of third world workers.

Many companies have expanded their operations and productive capacities while counting on a seemingly endless thirst for material goods and services by consumers. These companies haven’t taken into consideration the limits of time consumers have, which means some of their investments will turn sour.

If companies over-invest and don’t get the anticipated pickup in demand, a recession could occur within a year. The recession, if it occurs, may be triggered by the recent collapse in the long bond and may be exacerbated by the situation involving the Y2K problem.

The reaction by the stock market will not be favorable to these events and I expect the indexes to trade 20% to 30% lower before the end of the year. Long term holders of stocks should probably avoid attempting to time this event, but I foresee some interesting opportunities in the coming year for nimble traders.

Very Good Site

A fascinating web page has been put out by Smart Money Magazine. Its called “Map of the Market.” Check it out at http://www.smartmoney.com/marketmap/

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