The New Austerity Fad – Start Saving Today

It’s never to late to start saving and saving appears to be the latest fad. It has had been an unconscious effort for my part so far, but now I am taking up the challenge in earnest, in this self imposed hiatus from work, sparing only food from my list.

Food, we cannot play around with (dead ducks in China and contaminated pork being sold as beef !) and I am not suggesting fine dining which is fortunate for me, that I do not eat much anyway.

Stories I hear about Joel Robuchon sitting half full or rather, half empty, as with many of the high end diners do not sit well with the WSJ article on how Pangea serves up $26,000 cocktails with diamonds in them. Yet I am just slightly convinced that austerity is hitting us as I write.

Fads are cyclical and start in small waves before building up to a crescendo. Austerity, likewise, has started from the top with China’s change in power last year and their efforts to cut down the grandiose opulence  in the new government. It is all in the details; the admiration for the US Treasury Secretary who ate cheap dumpling fare and the absence of flower garlands at the Communist Party meetings to ostentious displays of cars, watches and gifts . The American Sequestration is another big cost cutting exercise. Europe, trying hard with austerity and balancing their budgets.

Global austerity has started and growth will slow, no mistake in that. We will be counting GDP in the micro decimals and rejoicing at anything above zero.

WSJ/NBC did a poll in January where 60% of Americans see the next year as “a time to hold back and save”. And another Reuters survey finding that 2/3 of US adults are cutting back on spending.

WSJ Breaking: More: Americans saved more despite higher tax rates that took hold earlier this year.

I believe in a social gestalt, and that we are consciously or unconsciously part of a whole. All of a sudden, things are happening all at once, in synchrony and yet all random.

Gym memberships falling in NY
Dept Store Sales in Korea Drop The Most Since 2005
Chinese Officials Cutting Down on Lavish Spending
Restaurant Sales Looking Like The Last Recession

The outlook is bleak.

FT : Experts Believe That The Days Of Vast Bonuses, Particularly In Europe, Are Numbered.

Money begets more money. It is the velocity concept. In the wake of the Lehman collapse, it was estimated that one Wall Street banker supported 6 jobs, including the car park valet and the pub waitress.

Main street should save their gloats.

Workers Are Saving Too Little To Retire
The Biggest Retirement Crisis In American History
Younger Generations Lag Parents in Wealth-Building
By 2020, the share of U.S. households over 55 years old could hit 46.6%

Japan is the classic example of a saving nation. Is that such a bad thing ? Now that they are going Debt/GDP of >200%, we are not seeing a “PIIGS+c” (Port/Ireland/Italy/Greece/Spain + cyprus) story there.

The real estate boom is cause for more austerity. Tying up wealth in real estate assumes positive equity and rental returns. There is no cause for celebration particularly if there is a 30 year mortgage involved.

So my dalliance with austerity has started, shopping less, eating out less and a valiant attempt to grow my own potatoes. Not changing into a new car this year even as my boneshaker turns 3 in June.

Squirrel into what ? People ask.

Some interesting stats plagiarised from an email.

S&P returned 10.0% in Q1.

realized volatility was 10.3%, making this quarter’s return the second best on a risk-adjusted basis since 4Q’03 (1Q’12 was slightly better).

this compares to an average quarterly return since 1928 of 1.2% (86th percentile) and an average realized vol of 15.7% (28th percentile).

the market saw 37 up days (62% of occurrences), putting it in the 90th percentile historically.

in turn — and this is the really important part — the S&P ‘information ratio’ of 2.1 made 1Q the best quarter on record (data since 1962).

despite the very strong quarter, underlying sector performance was strikingly defensive.  health care (+15%), consumer staples (+13.8%) and utilities (+11.8%) led, while materials and tech lagged (each returned just +4.2%).

attendant to this, stocks with exposure to dividend growth significantly outperformed (GSTHDIVG beat the market by nearly 500bps).”

The Saving trend has just started. But when I get a headline like this one, an eerie feeling envelopes me and makes my hair stand.

BARRON’S: ‘There Is No Alternative To US Stocks’

The ones who have seen it say this.

“People are going to jump off tall buildings.”

Stockman Warns of Crash Of Fed-Fueled Bubble Economy

I am excited to be embracing the new austerity trend, perhaps as an early majority or early adopter as the marketing adoption process would have it.

Will keep you posted on how those potatoes come along.