In the late 1970's the movie, Animal House took the country by storm. College campus' were having toga parties, and who could forget the scene at the cafeteria when John Belushi began shoveling food into his face just prior to the famous food fight.
Well my friends, the John Belushi's of today are the American consumer. Today, economic reports showed that consumer spending jumped 0.8% in June while personal incomes rose 0.5%. Am I missing something here or are consumers spending more than they're making. The spending insanity is alive and well.
In addition, the Big Three automakers reported that car sale for July reached 20.8 million units, the highest level since October 2001 when 21.8 million units were sold. I told you recently that the "employee discount" promotion was nothing more than a classic textbook inventory reduction sale. I guess I was right since CSM Worldwide, an automotive forecasting company, said " the deals were good because they cleared out 2005 inventory".
These record sales occurred despite a rise in Oil prices which closed at $61.89 per barrel. I can still see the kid in the Dodge ad saying "its a Hemi". Soon these consumers will be saying, "why did I do this".
To add fuel to the fire, insane consumers still believe they are real estate experts. The rise in real estate prices have lured investors into a 1999 NASDAQ sense of security, and in turn, consumers have been supporting their Paris Hilton lifestyles by borrowing against their home equity.
The "can't lose" mentality in real estate have led consumers into ramped real estate speculation. It has been reported that 50% of homes purchased in Las Vegas was for investment purposes. I know investors here along the coast of Florida who are overextended with " 20% letters of credit" on condos who have no intentions of going to closing on those properties. Not only that, if the market went south and they were forced to close, they couldn't.
Sure, the insanity can continue for a little while longer, but the easy money that Alan Greenspan gave consumers is slowly being taken away. Who knows, now that the Chinese are upset over the political backlash of their Unocal venture, they may step up their plans to unload more US debt. I don't know if you were paying attention, but as CNOOC began to run into resistance over Unocal, the 10 year Treasury rose from 3.9% to 4.33% today.
The market may have a more room to run through year end, and the John Belushi consumer may continue gorge themselves a little longer, but I am convinced we will see a huge food fight in 2006.
