Reply #23: How's The Wealth Effect Workin' Out For Ya'?

[slipslidingaway]

charts at link
http://contraryinvestor.com/mo.htm

June 2011

"Although the numbers are not yet publicly available for 1Q of this year, the banks actually sold Treasuries very modestly in 4Q of 2010, so it was partial mission accomplished for the Fed in the period. But as we all know, bank lending has been anemic at best. This Fed intended outcome for the banks has not materialized. Although it’s just our perception, the banks used the money to trade the financial markets (remember that banking system excess reserves can be used as collateral for futures and derivatives contracts – how convenient). So in the absence of bank lending, just what else was QE2 supposed to have done to incite macro economic acceleration? Easy, it was to have sparked the fabled wealth effect among consumers.

...We have more than a fair amount of charts to come that we believe very much paint a picture of the character and reality of the wealth effect outcome so far into the current QE2 journey. Although we've covered retail sales many a time largely from a top down point of view, we'd like to drag you through a little chart driven bottom up look at the individual components of the retail space and just how they are contributing, or otherwise, to the so often glossed over top line numbers. If you ask us, they tell an important story of the character of the recovery of the consumer. Is the so-called wealth effect of higher equity prices translating into a greater level of discretionary spending as directly advocated by Bernanke? You'll remember the quote from the Washington Post op-ed piece by Bernanke the day after QE2 was officially announced:


And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.

Get it? In the master's own words boosting consumer wealth and spurring spending. Again, so how's that workin' out for ya Ben?

Let's start with a quick look at the current retail sales breakdown by sector..."