Tags: Buy | Myth | US | Consumer

Don't Buy Into the Myth of the US Consumer

Wednesday, 30 Nov 2011 08:28 AM

By Ashish Advani

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The world has bereft of good news and is desperate to latch on to any hope of global economies growing again.

We desperately want to believe we have had a respite in the doom and gloom that has engulfed the globe due to the European debt crisis.

The recently concluded shopping insanity, also known as Black Friday and then its follow-up act, called Cyber Monday, were apparently successful. We have had a 6.6 percent growth in Black Friday sales (about $11 billion in sales) while the follow-up act raked in well over $1 billion all by itself.

The markets around the globe are rejoicing. And if it was not for the European debt albatross around the globe's neck, we would have seen much more exuberance than we have seen so far.

Back where I grew up, a single swallow does not indicate summer.

I do not believe for a moment that the woes that ail America are over.

Not by any stretch of the imagination. Unemployment is at record highs (despite the lies that get baked into the jobs numbers), more companies have warned about next year than those confident about future sales and margins are shrinking due to the heavy sale prices that have to be offered to get people to buy products.

And let’s not forget the massive twin deficits that are causing U.S. dollar funding problems globally, and leading to downgrading of the American debt.

I do not believe that this euphoria around the American consumer coming back will last and we will see a drop off well before Christmas comes around.

Frankly, I cannot see how the American consumer has the confidence and plans to spend lavishly when they are not sure if they will continue to have a job next year or not.

Soon the false optimism will fade and the true problems will have to be addressed. The grand failure of the supercommittee reminds us that cooperation, or bipartisan spirit, does not exist in Washington.

One fact that is slowly being recognized around the world is that the deleveraging that began in 2008 with the U.S. banks is now taking root all over the world. The bastion of economic dominance – Wall Street — collapsed and is yet to recover.

Next to fall was Europe and the problems of excessive debt will plague them for a year, if not longer.

It will take a true and strong charismatic leader to yank them out of the crisis and so far I do not see one on the horizon. All the current cast of leaders are cut from the same fabric of stale and used ideas. We need a true messiah to lead Europe out.

But there is also trouble brewing in my beloved Asia. Due to the global nature of the slowdown, no one is immune. No one can continue to press ahead at breakneck speed when the world largest groups of consumers are struggling.

China is showing signs of slowdown and India is definitely in the throws of a real slowdown. But I am also noticing slowdowns in Philippines and Thailand. The only bright spots so far are in Malaysia and Indonesia.

Regrettably they, too, shall slow down soon.

And yet, there are real growth numbers of anywhere between 5 percent to 8 percent GDP growth in these countries. As I have repeatedly said, I would take the 5 percent to 8 percent real growth over the heavily discounted sales number spurt of a day, as my area of investment.

A word of caution is to watch the area of investments and not get swayed by the index funds as they mix in the good with the bad.

Fixed Income investments in India are still golden and yield anywhere between 8 pecent to 10 percent depending on different criteria such as duration, etc.

Many of the strategies can be backed by sovereign ratings making them almost gilt edged in the short term. I would capitalize on the lowest rate in history of the rupee and lock in some amazing yields.

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