Disclaimer

DISCLAIMER: The foregoing has been prepared solely for informational purposes, and is not an offer to buy or sell or a solicitation of an offer to buy or sell any thought or instrument or to participate in any particular thought process. I am not a seminarian, an economist or a politician, but this blog may contain thoughts that may pertain to any of the above, and these are just my thoughts on the date of record. I reserve the right to change my opinion or thoughts based on new information, new misinformation or life experiences. Although not all thoughts may necessarily be original (after all, there is "nothing new under the sun"), I will do my best to point out where I have borrowed other's thoughts and ran with it. WARNING: Continued reading may result in headaches, apparent loss of intelligence or apparent gain in intelligence, or initial annoyance at the writer of this blog. This blog is not intended for the weak at heart, the ill-tempered, or people who already know it all. Read at your own risk, and only post or email comments to me in a friendly manner if you really expect or desire a response. Consult your family therapist before reading this blog. If the views of this blog are overly offensive to you, seek immediate attention. The thoughts provided are not meant to raise your blood pressure - just to get you thinking, but in certain cases, may require an increase in blood pressure in order to get you thinking. Clark's Thoughts may not be suitable for all people.

Thursday, April 16, 2009

Welcome to the Wants-Based Economy!

You would have to have been living in a cave to think that we were not going to have negative earnings reports. It will be ugly, potentially very ugly, but there aren’t many people out there who aren’t expecting that to happen, and that being said there may be relatively few suprises.
The last several quarters have brutalized companies that missed earnings expectations, but the markets have not dramatically rewarded companies that beat expectations. As a result, you will begin to see fewer and fewer companies that will be willing to offer guidance.

Consumer spending drives the economy. The problem is that the big spenders – the people with the most discretionary income – are Baby Boomers, and those Baby Boomers have now moved into a "wants-based" ecomomy instead of a needs based. When they had kids at home, they had very predictible spending patterns. The kids needed a new ipod, they needed new clothes, they needed a car when they turned driving age. But now those kids are out of the house, and many are out of college. Their parents can now spend their money any way they want – thus, they are in a wants-based ecomony.

Think about it for a second. The aging Baby Boomer doesn’t need to buy a toaster, a microwave, or a host of other itmes found at your local retailer. They already have an established home. They don’t need a bed, loveseat, or lawn mower. They already own the stuff they need. Now that junior is out of the house, his parents can buy the stuff they want.

The way this impacts the earnings season is that creating the earnings estimates becomes progressively more difficult – a high school kid may go to Best Buy every week and buy a new cd or a video game. A Baby Boomer with discretionary income may go to Best Buy this quarter and buy a new flat screen television, but that doesn’t mean they will be back next quarter. Unpredictible spending makes for more uncertainty in the marketplace. The expenditures have gone from small but expected to large and unpredictable.

Look for the cream rise to the top over time, as early as this quarter. Expect businesses within similar segments to have vastly different numbers. Just because Best Buy does well, does not mean that Circuit City or other type retailers should do well. Just because Lowes has a good quarter, doesn’t mean that Home Depot will. In the past, there were enough consumers to make the entire sector look good. Now that the majority of consumers with discretionary income are in a wants-based environment, and add to that fact that many consumers scared to death to spend their money, expect for the top businesses in each sector to start to shine, as the weaker ones begin to show their faults. Of course those are just my thoughts....Clark's Thoughts.