Friday, March 30, 2012

Optimism is still in very short supply



Both of these measures of consumer confidence (Conference Board on top, Michigan on the bottom) are saying the same thing: confidence has improved from the abysmally low levels of the past recession, but confidence is still very low from an historical perspective. I think the same can be said for the equity market, where flows into domestic equity funds remain decidedly negative.


So I continue to believe that the rally in equity prices is not being driven by optimism. It is being driven by a reduction in pessimism. It's not that the economy is doing great, it's that the economy is not doing as badly as the market has been expecting.

21 comments:

Squire said...

Consumers spent like crazy in February. They didn't buy stocks but they sure did consume. Thus the name for U.S. citizens - consumers.

Sentiment is unreliable. How do you interpret it? Maybe people are unhappy because they don't have all the stuff they want. Maybe after consumers get their fill of stuff, they will start putting money into stocks.

Benjamin said...

Perhaps if Obamacare is shot down, and Romney wins, you will see investors confidence pick up. Rallies beget rallies, so maybe we have a secular rally even if Obama stays in.

We get no peace dividend as we are spending about one-third more now on defense than we spent (in break dollars) when reagan was staring down the Soviet Union. That is a big drag on the economy, as is closing our borders to immigrants.

John said...

Oil and health care costs are a big drag on the U.S. economy. Martin Wolf wrote in the FT this week that oil spikes are likely because supply is tight, demand is strong and the price effects of trouble with Iran.

The solution is not to drill more, but to get off of oil. (Why are we not seeing a bigger push to convert vehicles to natural gas?)

Ampother big drag is health care. Employers are making staffing decisions based on who is going to keep down vs push up insurance premiums. A terrific job candidate might get passed over if his wife has a history of cancer or his son has MS.

Conservatives holler about the corporate tax rate and the need to cut it to keep U.S. companies competitive in the world market.

We could take a huge competitive jump forward by going to a single payer Medicare for all system and separate health care from employment.

Until these things happen: switch to natural gas and single payer, expect more of the same and gradually worse, sorry to say.

PD Dennison said...

"We could take a huge competitive jump forward by going to a single payer Medicare for all system and separate health care from employment."

This Soviet style of healthcare will make us sicker and poorer.

You take this system, I'll go where there is freedom and prosperity.

Can't you find places to comment on Move On or Huffington?

Squire said...

Companies and unions should not be allowed to provide group insurance. But single payer will bankrupt the country as fast as what we have now. Single payer does nothing about the high costs caused by croney government. Start by eliminating the anti-trust exemption for medical care providers.

Squire said...

Looking at the data I see that real disposable personal income is flat and has been for a while. Still, we need to get the consumer to stop saving and borrow and spend. Maybe the newest PB, the Consumer Financial Protection Bureau, can have the Federal Reserve Bank guarantee part of consumer loans. This way credit standards can be lowered and get more people to borrow and spend. Wall Street can do more securitizations of consumer loans with those protections in place.

Anything except reforms. Even inflation.

Dr William J McKibbin said...

The only people in America who should be optimistic are accredited investors -- everyone else is likely to see long-term erosion of their wages and savings -- it's that simple -- my advice to Americans is to start building a portfolio of investments and acquire world-class skills early in life -- labor is abundant in the world right now, and those relying upon government pensions, entitlements, and funding (including defense spending) are about to endure the worst of times -- government bonds are another disaster waiting to happen (remember that when bond interest rates rise, yields decline) -- pessimism is for the masses, and optimism is for the few in the 21st century...

Dr William J McKibbin said...

PS: Errata -- I meant to say when bond interest rates rise, bond prices decline...

Hans said...

I agree with, Squire!

This index is beyond worthless; designed for cocktail parties to fuel conservation...

Scott Grannis said...

Re: "we need to get the consumer to stop saving and borrow and spend." No, that's not the solution at all. We can't spend our way to prosperity. Prosperity comes from the supply side: creating new businesses, new products, and new services, making work more productive, and/or working more.

John said...

"This Soviet style of healthcare (single payer)will make us sicker and poorer."

No, not "Soviet style," more like Canadian style, more like U.S. Medicare style, where doctors and hospitals are in the private sector and there is a single payer with much lower administrative costs.

Ever heard of "job-lock? The current employer-based health care system keeps people stuck in jobs they hate and would probably benefit themselves and their employers by leaving behind.

But they can't. They'll lose health insurance.

Scott Grannis said...

"Job-lock" can be fixed very easily by changing the tax code to allow everyone or no one to deduct health insurance costs. Changing the tax code would be the single most important and most far-reaching of all decisions affecting the health care industry, since it would reintroduce market forces, which can only operate if the person who receives a product or service is the same one who pays for it.

John said...

"allow everyone or no one to deduct health insurance costs"

Don't we have that now in the form of HSAs?

Scott Grannis said...

No. Because the majority of people get their insurance paid for by their employers, and if they quit or are fired, they lose their coverage. We need portability, and that works best when people buy their own policies from the start.

Squire said...

I was being sarcastic when I said consumers should borrow and spend.

I don’t believe it is enough to just change the tax code to allow all or disallow all deductions for health insurance, it is essential though and I hope that can happen In January. The medical providers can charge you based on who you are. No other industry is allowed to do that. My doctor charges a different price to United Healthcare than he does to Blue Shield. He pays Medicare a different price than either of them. He charges 10x more less a 10% discount to cash payers. And medical providers don’t have to post the prices ahead of time and can charge you what they want after the fact even when you had an emergency and are in a state of duress they can charge you, and they do, anything they want to if you are a cash payer. What is this crap that medical providers aren’t businesses and not subject to anti-trust law.

Squire said...

Back to the consumer, who has had flat real disposable personal income for a while.

It is an epiphany for those who come to understand that production comes first. They have an insight that demand siders don’t have no matter how obvious it is to them that demand comes first. Of course, demand side econ fits into the bigger savior government ideology. And demand side is simplistic outcome based first level thinking. There is a problem - people don’t spend enough money. So lets attack the problem directly and give them money.

John said...

"the majority of people get their insurance paid for by their employers"

They get a portion of their insuarance paid for by their employers. Most of us pay a share with pretax dollars. I assume the employer's share is also tax deductable.

If the tax deduction for the employee (and or employer) were eliminated, wouldn't that run afoul to Norquist's no raising taxes pledge?

So, the remaining alternative is to make everyone's insurance costs tax deductable. However, the median household income is below $50k and tens of millions pay little income tax anyway. They cant afford insurance and a tax deduction wouldn't save them much money, if any. The tax deduction would more significantly benefit those in higher tax brackets?

Dr William J McKibbin said...

@Squire, the consumer in America will require all of their earnings to maintain their standards of living (clothing, food, housing, utilities, etc) -- so there is no chance that those earning less than $250,000 annually will have a dramatic effect on the economy -- in fact, those with ordinary skills (masters degrees and below) will likely see their earnings further eroded by paycuts, benefit cuts, higher taxes, and higher energy costs (that effects everything) -- the key to the future of America will be decided by spenders earning well over $250,000 annually (as in more than $1 million annually) -- everyone else will live their lives patronizing Walmarts, cheap restaurants, and tourist-class vacation spots -- the key to getting ahead in America in the 21st century is to attain world-class skills (a doctoral degree in medicine, nuclear engineering, electrical engineering, biochemistry, etc, or becoming a professional athelete or film star) and using one's income to acquire equities to build a portfolio of global holdings -- clearly, monetary expansion (inflation) has been rejected as a path forward, which only leaves austerity as future of the 21st century -- in other words, taxes on those earning less than $250,000 annually will be increasing dramatically, as will the cost energy, and therefore about everything else that middle-income consumers need -- I expect the cost of education to increase dramatically in the coming years as well, so families will be hard-pressed to find money to pay for their childrens' college educations -- austerity in America will require savage cuts in livestyles for those earning less than $250,000 -- it's all part of America's decision to go down the road of austerity -- the good news is that today, those with world-class skills are earning premium wages in the global economy, and those with substantial equity holdings (accredited investors) are seeing their investments blossum -- the future looks bright for those who are in the top one percent class of America -- everyone else should take cover...

John said...

"everyone else should take cover."

What or where is the "cover?"

Off the grid? Canada? Costa Rica?

Squire said...

I don't disagree with Dr. William; never really do.

I just hope things change fast enough to prevent that future.

Take cover? Hyperbole? I guess take cover means civil unrest when welfare is reduced.

The cost of medical care needs to come down. Crony government keeps it high like it does education.

John said...

The managerial (corporate and public sector) mantra seems to be "people are cheap," and if they're not, get rid of them.