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Spammers tell the future

By Michael Coote

Friday 7th February 2003

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Spam is the irritating electronic version of letterboxes stuffed with direct mail. But just as with direct mail, there is something to be inferred about economic activity from spam.

Noticeable over 2002 was a plethora of unsolicited emails extolling the lowest US interest rates for 40 years. They pushed either refinancing mortgages, particularly to take on more debt, or applying for new credit cards.

These messages still pour in. As one spam says, "Buy it now, pay for it later."

But the tune is changing. Now spam talks of debt reconstruction and taking advantage of mortgage foreclosures. The inference is that an increasing number of Americans have problems with their debts.

Several address the question of how to acquire more debt if credit-impaired. That sounds a warning bell.

The mortgage foreclosure messages are more disturbing. One person's misfortune is frequently another's opportunity, but if there is a business to be made in spamming potential investors about mortgage non-performance, the suggestion is that a rising number of Americans are failing to cope with indebtedness regardless of low interest rates. The implication is ominous.

Markets are shuddering over the prospects of war with Iraq. However, to paraphrase what Generalissimo Chiang Kai-Shek said of invading Japanese and insurgent Chinese communists respectively, Iraq is a disease of the skin, whereas high household indebtedness is a disease of the heart.

Whether Saddam Hussein gets booted out by force is neither here nor there. His fate will be decided well before Christmas. The man is a non-issue unless you speculate in gold or oil and, if so, it is fast approaching time to sell.

It is the banks and other lenders, which will still be around and wanting to get paid from New Year onward, on which the markets should be focused. Householders are being crushed by debts they cannot service. Nor is the ability to service new debt infinitely elastic. The demotic marketing of spam tells us so.

The second Bush administration seems determined to do a re-run of the first one. The US economy is faltering. It is still being driven by the housing market but for how much longer is anyone's guess.

The US Federal Reserve left the federal funds rate at 1.25% in a recent decision. It is tipped to chop interest rates further later this year. If it does so, it will indicate it has failed to reinvigorate the economy.

There will no doubt be another burst of spamming about refinancing mortgages and taking on more credit cards, digging a deeper debt hole in the process.

In the early 1990s both Japan and Germany were mired in recession. The US carried the world economy along by itself. Today, Japan is headed back into another recession while assuring the world it will come right within two years. Germany is looking ghastly, with an official 2003 growth rate of 1% projected.

The US is not pulling its weight. Its fourth quarter 2002 growth rate was an annualised 0.7%. The early 1990s are not being replicated. The current account deficit has hit 5% of GDP. The household savings rate has reached an all-time low of 1.6%.

Meanwhile, Americans borrow to the hilt and are encouraged to do so by a Fed dreaming up ways to give money away.

Stockmarkets this year will be hard-pressed to take much of a lead from the US economy. Indebted American households are not going to be a strong source of demand for shares.

US companies are hampered by sluggish demand and excess capacity. To add to their woes, they have been underfunding staff pension schemes and need to make massive top-ups that will divert revenues from dividends and capital expenditure.

President George Bush has given few reasons to prop up Wall Street. Certainly, the spammers are not tipping shares.

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