Careful Shoppers Put the Y Back in Xmas

The establishment media want you to get happy about shopping this Christmas, but how can you do that when the value of your damn house keeps falling?

At his Pentonomics blog, Euro Pacific Capital senior economist Michael Pento puts a lump of coal in the stockings of those confident consumers you keep hearing about:

But data released today from The S&P/ Case-Shiller Home Price Indices should dampen shoppers' enthusiasm. The U.S. National Home Price Index fell 2% in the third quarter of 2010. On a national basis, home prices are 1.5% lower than their year ago levels and 15 out of the 20 cities measured were down over the last 12 months. On a monthly basis, 18 cities posted declines from August, compared to 15 month-on-month drops in August and just eight in the July report. Home prices are headed lower because of tight credit, high unemployment rates and a huge backlog of foreclosure properties.

On a separate note, the recent move higher in the dollar index reveals little about the true strength of our currency. The DXY is up .4% today mostly on Euro weakness. However, the price of gold surging $20 an ounce clearly illustrates the true direction of the dollar. Saying the dollar is gaining purchasing power today is akin to believing someone falling off a cliff at 90mph is actually flying, just because his buddy is dropping at 95mph and will therefore will hit the ground first.

Free money and a massive increase in government debt have managed to temporarily levitate the serotonin levels in consumers' brains.

Are all these happy shoppers just impulse buyers in the mall of fools? This week's precipitous decline in the Case-Shiller housing index certainly feels like the other shoe of the double dip rearing its 500-pound head like the elephant in the snake in the grass. New unemployment applications keep going up. According to Federal Reserve flow of funds data [pdf], household net worth, which we look in on from time to time, has been falling for two quarters and – at $53.5 trillion – is still more than $5 trillion below where it was in 2007 [pdf].

Remember also that people are not just seeing declines in the value of the houses they own; they own less equity in their houses. The second quarter flow of funds report has the equity portion of real estate at only 43 percent -- close to the lowest it has been in U.S. history. Finally, all these stories about a record "Cyber Monday" don't mean much. (And as much as I love to kick it old school, can we retire the prefix "Cyber" already? It sounds like something the Grecians would have invented.) E-commerce, according to the Census Bureau [pdf], still accounts for a mere 4 percent of total retail sales.

But here's some interesting news that could make Pento turn that frown upside down: People are earning again. According to the Bureau of Economic Analysis, personal income in October was $12.67 trillion. That's the highest it's been in BEA records going back at least to 2005. The personal income figure has been rising steadily throughout this year, after remaining more or less flat at $12-$12.1 trillion through most of 2008 and 2009.

They're also saving slightly more – sort of. In the past we have caught Tim Geithner and his droogs – on more than one occasion – lying about a fictional increase in personal savings. But the savings rate has been trending up in recent months and averaged 4.84 percent for the ten months beginning in January. That's still less than half what it was when this nation used to win wars and make stuff. But it's higher than it was through most of the past decade.

Locust-eating scold that I am, I still want to believe this season's shopping will be driven by fools maxing out their credit cards and planning to go on relief once they can't pay back their debt. But the credit card industry continues to slim down, with credit balances declining year-to-year and eight million people giving up credit cards entirely.

The foreclosure jam Pento points out may actually be helping the savings rate. One of the many reasons default and foreclosure is the most humane remedy for mortgage deadbeats is that it frees up their income rather than leaving it committed to payments they can't afford. You may know a few good people whose disposable income has increased through the magic of no longer having to pay an exorbitant mortgage. I know I do.

Spending is only a problem when you're not spending your own money. That doesn't seem to be the case this season.  If people want to splurge this Festivus, mazel tov to them.