The Building of a Consensus

For weeks, we here have been in a conversation of how we are so much closer to the beginning of this credit crisis in the financial markets than the end.

While many media pundits and financial markets spokespeople have been soothsaying in recent weeks that things are getting better the facts do not lie.  As time passes, more news percolates up to the top and in sight.

Take yesterday for example; Fed Chairman Bernanke, speaking in New York, talked about how the housing market downturn isn't over.  Any Minnesota resident that is trying to sell a property in this market will reply, "NO KIDDING!"

Also, just a few weeks ago, Citigroup announced that they anticipated their financials to return to "normal" in the fourth quarter of this year.  However, the data in their quarterly report shows that the fallout of the complete collapse of the subprime mortgage market, and the shockwave still rippling through the Structured Investment Vehicle (SIVs) marketplace is taking a greater than expected toll on their financial performance and will continue to take an unpredictable toll.  This just speaks to how much uncertainty there is across today's financial markets.

This crisis will continue.

Next up, expect more attention being paid to the rise of consumer credit defaults and late payments on consumer credit card accounts.  As the ATM potential of consumer's homes has evaporated the next source of liquidity for Americans becomes their credit cards.  The easy access to these (i.e. how many solicitations for a new credit card do you receive on a weekly basis?) credit facilities is at an unsustainable extreme.

The final bastion of liquidity, and something you will see reported in the general media more in the coming months, will be consumer's retirement accounts.

Fact:  our country has a negative savings rate at the moment.  So, my question to you is this; if the sources of borrowed cash evaporate and savings ultra low, how long can discretionary spending continue?

The answer to that question is very telling to what might come to pass in our near future.  The economy faces major known challenges ahead.  What about the unknown ones yet uncovered?

www.BrettGrendahl.com