Wednesday, March 29, 2006

All right, all you savestors...

I can't vouch at this point for the research discussed in this article Is our low savings rate a good thing?, but it discusses points I've made here on numerous occasions. The article discusses research showing that after savings rates move higher equity returns are lower. This is intuitive because investing and saving are not mutually exclusive, or independent of one another. They are alternatives. If saving is rising, it might be that people are uncomfortable with alternative places to put their money. They may want their money close as close to the chest as possible.

But you know the government defines savings as being liquid assets and the reality is that many brokerage accounts have become just a liquid if not more than a typical saving account. You can sell stock via your cell phone, sweeping the money into the money market account and write checks against the money. Alternatively, if you put your money in a savings account with an independent bank without online or phone banking services getting to your money might require a physical visit to your branch to transfer funds from a savings to your checking account.

From the government's counting perspective the rules of what constitutes savings are black and white, but from the savers and investors' perspective what's saving and what's investing is quite gray. Perhaps we need a term to clarify the issue. We could call these people savestors. Yeah, I like that a lot. Combining saving and investing data would produce a much more relevant and telling economic series.

posted at 3:27 PM