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Consumer Sentiment Plunges On 401K Drop
Submitted by Andrew Zeitlin of Moneyball Economics
Connect the Dots
The University of Michigan’s Consumer Sentiment dropped from 91.9 to 85.7 – the lowest level in a year.
Meanwhile the S&P 500 remains down, -5% year over year and -10% since July.
It’s no coincidence that consumer sentiment stumbled at the same time that the stock market plunged.
Coming back from Summer vacations, households saw:
- The deepest drop in 401K wealth in years
- The most prolonged drop in years
It has been a shock because investors have been conditioned to ignore the dips; or better still, to buy the foolish dips (BTFD) because time-after-time the dips reverse within a few weeks and the market plows onward and upward. In July last year, the market tumbled 3% and then fully recovered within four weeks.
This time is very different. Household 401Ks tumbled 10% and remain down after ten weeks – deeper and longer. That’s a big break from the normal routine. Another difference is that previous market drops had identifiable causes: a government sequester, a Greek bond collapse, and so on. Not this time, and that will create a lot more anxiety and uncertainty because without a clear reason for the collapse there can be no clear remedy.
Investors are asking what’s wrong and they can’t help but notice reports of negative economic news, from a slump in payrolls to slowing factory production. From The Economist to USA Today, the media is discussing a global economic slowdown. Once it hits USA Today, Middle America is informed. Fears of a slowdown accompanied by a very real hit to household wealth will make US consumers defensive. We recently warned that consumers were very sensitive to the stock market and that it would definitely hit spending if it did not reverse quickly.
August Retail
Because of the conditioned response and the expectation that all would return to normal growth, the stock market tumble did not hold back consumer spending in August. September, on the other hand, is a much different beast. Suddenly economic slowdown is a very hot topic.
Holiday spending and travel are now at risk. The next few weeks are when travel and holiday shopping budgets are set. Those budgets aren’t typically funded by stock portfolios or 401Ks, but if households suspect that a falling equity market is signaling a recession is coming, then job security anxiety increases. They know from experience that after markets turn bearish, the next shoe to drop will be jobs. That leads to frugality and consumer spending retrenchment. It becomes a self-fulfilling cycle.
Is the stock market down because of an impending recession? I don’t think so. First, because the US economy is more stable than it appears, once we look past the problems in the energy and materials sectors. The economy is slowing and this cycle is long in the tooth. The second reason is the timing, suddenness and breadth of the drop. From July into September, all asset classes fell. Gold wasn’t a safe haven in the carnage – it fell from $1,200 to $1,100. We had a race to the exits as everyone ran to liquidate, and by everyone we mean banks and big investors. The trigger for the sudden run was the strong possibility of a Fed rate hike in mid-September.
Adding to the race for cash was China’s yuan devaluation. A lot of investments were backed by the yuan, so when it dropped in value, a lot of big investors had to cover their very big bets. That meant cashing out of other positions. It launched another liquidity fire sale.
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Ha ha is all I have to say about this.
Poor Sheeple, thats what happens when you follow the Kardashians
"But they promised!!!"
"Is the stock market down because of an impending recession? I don’t think so. First, because the US economy is more stable than it appears, once we look past the problems in the energy and materials sectors."
All I have to say to that is:
HAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA!!!!!
Don't make fun of people on the short bus.....
Gets worse every day; I wonder how pension plan funds are doing given they estimated an 8% return for the last 20 years.
I am no expert but the landscape looks to me like:
Retail = Bloodbath
Commodities = Bloodbath
Biotech = Bloodbath
Stawk Market = Beginning of Bloodbath
Housing Market = Soon to be Bloodbathed
One word..
October!
Bend over and take it like a man Mr. IRA/401K, the fudge packing is just getting started .
Mr. Chairman get to work!
10% dip and people have a tizzy fit. There were 15% correction twice a year for decades running back in the day.
Welcome to Amoarica! Have a nice day.
Heh, well that 10% offsets the penalty I had to pay to get MY money back. I don't feel so bad now.....cours' that 10% is just the beginning.
It's the leverage. A small tip and all the loose cannons slide across the deck. No Debt / No Leverage is the mantra here.
I'm going to spend what is left of my retirement money more slowly.
Downtown Money Waster
https://www.youtube.com/watch?v=LEO4js-3gcA&list=PLdoJjJ9cLqRxGcXZMfO_8-...
Indeed Sir!!!
Unacceptable, NIRP will punish your hoarding attitude, your money must be spent and the sooner the better. Sponsored by the FSA
My "retirement" bought a house on wheels, a truck to tow it with, PM's that just happned to sink with the boat, some cash in a safe, and the good old "beans and bullets". All hard assets, ready to relocate whenever I choose, wherever I choose.
Word up, house on wheels here too... Time to put air in them tires.
Buy the "foolish" dip? I guess I've been saying it wrong this whole time...
I always thought it meant "Buy This Fantastic Dip!"
BTFD - Ever look at it this way... "Buy the FED dollar"...When they're injecting they're suspecting.
your wages never go up...so its up to that 401k illusion to keep you financially in debt to the hilt
It's only natural to imagine that people would have REAL emotions when their fake jobs, in a fake economy, that produce fake returns in a retirement account invested in fake equities that are redeemable in a fake currency would plummet in value after 6 straight years of liftoff in a fake recovery.
It's all so UNFAIR!
or Fubar
The anti “wealth effect” is back. Without the Fed’s medicine it will remain untreated.
but, of course, they are still buying cars like there is no tomorrow.
"i'm not confident in the economy. But, interest rates are low and I can get a 1% 8-year loan with $2000 cash back!!!! Sign me up for that supersized SUV/Truck!"
Zombie chant:
Car Biz Must Continue
Car Biz Must Continue
Car Biz Must Continue
fuck 'em
Wait till they get next months report. Then the FED will release the Kracken QE4.
Next month? What when the stock market is at 6K?
I'm betting next Tuesday. Although perhaps not the FED, perhaps one of their allies.
Who the FUCK has any belief in a 401k any more...?!? Unless you are currently drawing on yours or plan to do so in the very immediate future, it seems un-possible that people could not have separated the signal from the noise yet. No reading of ZH required, just fucking look around and grok what you see in your surrounding area.
There will be blood, motherfuckers. Bet on it.
Most people I talk to still believe in owning the house, 401k, and their pensions that are coming up. I LOL at them....to their face.
401K is for chumps - tangible assets only
SHEMETAH01-K
201Ks coming soon
Keep working hard.
.
.
.
I've become convinced over the years that the University of Michigan’s Consumer Sentiment index correlates to...nothing.
Up or down, it says nothing.
It's hilarious to turn on the radio and hear shill Dave Ramsey telling people to put all their retirement money into "safe, secure mutual funds with a proven track record". You are STILL supposed to "fully fund your IRA's" and take advantage of any 401k your employer has available.
If you get a paycheck, that is cash in hand past the first level of government bureaucracy. It may be poisoned at the well from the start by the owners of the printing press, but at least it's not accountable to the IRS and other schmucks as its currently "post tax" in that phase right after you get it.
Why the fuck would you put it back in their tracking system in perpetuity through those so called retirement programs? Now if you want to use your own money, they will tax the shit out of it again. How is this a deal? They lie and claim there are tax advantages, but this is hardly enough incentive for a thinking person to give their money away to a stranger.
It's as if the last three 401k wipeouts never happened. Or is it just that people are so indoctrinated they don't know what to do, and the thought of having a pile of cash every week or two in their own control is too scary.
Having a pile of cash is kind of scary, it's inherently scary and that's why banks exist. I've spent several hours staring at vanguard's website but I just can't pull the trigger and now I'm happy I didn't.
Trust, trust in the establishment.
Because the establishment will never let you down.
You have nothing seen yet, negative rates my ass.
My stacks of 401k still weigh exactly the same as they ever did. 30 years from now they will still weigh the same. No worries here.