James Wolcott: The Long Hot Summer, the Long Cold Winter

Over the weekend Barron's ran an interview with two hedge fund managers and dedicated short sellers, Lee Mikles and Mark Miller, who argued that we were at a dangerous juncture vis a vis the economy and stock market. Since short sellers benefit from falling stock prices, they're prejudiced to the down side, but that doesn't mean they're wrong. (The italics below are mine.)

Barron's asks: "Why do you think we are at an inflection point?

"Mikles: Bottom line, the consumer is broke and he doesn't know it yet. But he is about to find out. All the buckets that propelled consumer spending are empty now, whether it is the increase in mortgage debt, the increase in consumer debt or the reduction in the savings rate. No one statistic will tip the scale at the end of the day. But one very obvious and very curious statistic is that we have dipped into a negative savings rate for the first time. That is not only unsustainable, it is sustainable only for a few months. That's important to note because it tells you consumers are borrowing money to make debt payments. The U.S. consumer has become payment driven. He is driven not by the aggregate amount of debt he possesses but by the amount of the payment. And now the consumer has not only taken his savings rate to nothing, it has turned negative.