With the “debasement trade” back on, we understand from reader emails and from questions asked during our Grey Swan Live! streaming sessions: cash is not an attractive investment.
Inflation is sticky at over 3%, well above the Federal Reserve’s target. Treasury Secretary Scott Bessent is telegraphing his moves and telling us he is about to deliberately push the value of the dollar even lower.
Whether consumers are listening to Bessent or not, their kitchen table concerns reveal they’ve gotten the message. The savings rate has declined, and is closing in on record lows:
While the percentage of stock ownership is at a historic high, America’s savings rate is dwindling rapidly and is nearing all-time lows. (Source: Bloomberg).
Up until the overt onset of the Empire of Debt in the 1970s, U.S. consumers saved on average about 10% of their income. Starting with the explosion in the credit card industry, the trend away from managing savings to managing debt has been consistent for over four, nearly five, decades.
After the anomalous injection of government cash into the nation’s savings accounts during Covid, the average savings rate has returned to trend… aggressively.
Current data shows it’s about to reach levels not seen since right before the housing crisis and the 2008 financial panic.
Years of stubborn wage growth don’t help.
Saving and investing for the long term are all but considered a luxury today. The real danger with these data trends is that consumers will choose quick stock market gains over holding cash, putting whatever’s left in their “savings” at risk in the market.
That scenario – savers trying to beat inflation by buying speculative assets – is the first stage in Ludwig von Mises’ “crack-up boom” thesis.
With stocks looking to retake all-time highs, the real question is when this unsustainable trend will end. Perhaps it will take time. Credit-aided consumer demand is a durable driver of the real economy.
But when consumers get the rare sniff of smelling salt, they scale back. Spending patterns change. And staple consumer items become the focus of consumer sentiment.
When inflation erodes purchasing power, buying a bottle of ketchup today is perceived as more important than waiting until next week, when the price could have risen again.
The result consumer demand for the basics rises.
Today’s Pro recommendation is a staple consumer goods provider, solidly valued at 12 times earnings, and pays a 6% dividend, far greater than a savings account at Bank of America.
~ Addison
