Tuesday, April 27, 2010
The Conference Board's measure of consumer confidence rose more than expected this month, but as this chart shows, it is still in the dumps. Consumers remain extremely worried about high unemployment, out-of-control fiscal policy, the big decline in housing prices, the threat of higher taxes (a VAT tax, which the administration seems to be flirting with, would hit everyone, particularly the struggling middle class), and equity prices which haven't made new highs for over a decade. There is no shortage of things to worry about.
As a contrarian and as a bull on the prospects for the equity market, I take a good measure of comfort from this. I don't see how equities could be overvalued in an environment that is chock-full of worries and perceived risks.
The risks are so plentiful and widespread that short-term interest rates have been almost zero for more than 18 months now. Trillions of dollars are sitting in cash that pays almost nothing, and the only explanation for why the money remains in cash is that the owners of the money are terrified of the risks they perceive. Even the Fed is so concerned about the economy that they have been unwilling, so far, to entertain even tiny rise in interest rates. (This may well change with the FOMC meeting announcement tomorrow, and I hope it does.)
Posted by Scott Grannis at 9:58 AM