Friday, May 25, 2012

More optimism, or less pessimism?


The University of Michigan's May Index of Consumer Confidence turned out to be much higher than expected (79.3 vs. 77.8), and the headline sounded breathless: "Consumer confidence rose in May to the highest level since October 2007 as Americans became more upbeat about the prospects for employment."

I think there is another way to interpret this. Rather than seeing the rise in confidence as a sign of growing confidence in the future, I see it as a sign that Americans are become somewhat less concerned about the future. After all, the May reading was similar to or even lower than what we have seen during several past recessions. In other words, for most of the period from 1983 through 2006, a reading of 79.3 would have been considered shockingly low. Optimism is still in very short supply these days.

15 comments:

William said...

Although your chart doesn't show it, I believe the peak in Consumer Confidence occurred for one month in either late 1999 or early 2000 at a high of around 130.

We are indeed a long way from "irrational exuberance" - much more like irrational pessimism today.

Unknown said...

Mr. Grannis,

Given your economic and politic positions and assuming that taxes can not realistically all go to zero, we're left with trying to find the least harmful ones, and then the right percentage. I'm interested in your thoughts on 1) the land value tax and 2) the VAT in the US as opposed to the sales tax.

The first one seems to find support on both sides of the political spectrum and seems to minimize economic distortion, but I'm not able to understand why it isn't more popular or common - the powers that be would somehow not benefit from this change? What am I missing?

I thought these links to the issue might be interesting to you, but I'm sure you already have some knowledge of these things.

http://freestateproject.org/about/essay_archive/lvtaxation.php

www.moneyweek.com/personal-finance/tax/the-land-value-tax-54816

Thanks for your time.

Dr William J McKibbin said...

The good news is that we appear to still be near the point of maximum pessimism, which spells "cheap" in equities -- value investors are on top of the world right now -- as for growth investors...

William said...

Economic Cycle Research Institute

MAY 9, 2012 BLOOMBERG VIDEO
"Recession Update"

"For the past three months, year-over-year real personal income growth has stayed lower than it was at the start of each of the last ten recessions."

http://www.businesscycle.com/

Dr William J McKibbin said...

Hi William, the reality is that real working wages, home values, and the employment to population ratio in the US have been trending downwards for many years -- in other words, anyone dependent on real working wages, home values, and job opportunities is enduring a declining standard of living -- that's been the path for about a decade now.

Given the above, I argue that the best path forward for Americans is to avoid dependence on real working wages, home values, and jobs by joining the 1% club of Americans who are not dependent on these factors -- that means acquring and converting world-class skills into premium earnings, and investing over a lifetime to achieve financial independence -- the 99% in America will likely see their wages, home values, and employment opportunities decline for the balance of the century -- that's a risk that those with means and brains should not take.

Now is the time to forget about the plight of the 99% crowd in the world, and to move forward to create a bright future for ourselves -- and the good news is that world-class skills are available right now in medicine, engineering, and science -- that's the world today -- that's just the way it is.

Good luck!

Dr William J McKibbin said...

PS: The short video describes what America and the world is only now starting to understand:

http://wjmc.blogspot.com/2012/04/foxconn-employees-at-work.html

I view the video above as an opportunity -- so does Apple Computer -- this is reality.

Remember that affirmation without discipline is the beginning of delusion, which is a widespread ailment in America today.

Tiho said...

I don't buy into the whole bullish argument regarding US company P/E ratios being below average and the outperformance / de-coupling in the economy vs Eurozone.

Market will get cheaper. We are heading for single digit P/E ratios like in the 70s. Imagine how low the confidence will go during the next bear market when gross profit margins and record earnings mean revert.

That will mark a true bottom in this secular bear market.

Hans said...

Let us all give grace to those who fell in battle, so that our cherished liberties and independence be the air we breath.

God's glory upon them; God's wisdom and light shine upon America for all to behold.

As a freeman standing on my feet, I give thanks to America: and on my knees, I give prayer to my Lord for his wise council and strength.

May this land always be the beacon of light, for truth, justice and liberties.

God Bless America!

William said...

Dr. William -

I appreciate your comments re: "real working wages, home values, and the employment to population ratio in the US have been trending downwards for many year"

I am just attempting to balance / justify Mr. Scott Grannis' view that there is NO evidence of an impending recession and the ECRI forecast that another recession is imminent (technically beginning mid year) and becoming "common wisdom" on Wall Street by the end of 2012.

Lipper Fund Flows (including ETFs) show Equity Fund outflows of $3.1 Billion in April and in May outflows of $9.8 Billion through May 23rd.

Schaeffer's Investors Intelligence shows that the Percent Bulls has plummeted to 38.3% from a recent peak for 2012 of 52.7% on April 4th. The Percent Bears has risen to 26.6 % from their recent low of 20.4% on May 9th.

For perspective, in August 2011 the Percent Bulls were down to 22% and the Percent Bears were up to nearly 50%.

John said...

"I argue that the best path forward for Americans is to avoid dependence on real working wages"

So that's what it's come to. The whole world is watching.

Bill said...

Scott,

I saw your friend Arthur Lafer on a panel with Paul Krugman Friday night and I must say he seemed incapable of rebutting Krugman's nonsense about the beauty of stimulus spending. I wish someone who has good debating skills would take Krugman on and put to rest his crazy ideas.

puffer said...

Scott -

Speaking of pessimism, I am curious how you would respond to this rather foreboding piece --

http://tinyurl.com/7k5yj6s

William said...

Two Pearls of Wisdom from Jim Rogers:

Acknowledge The Complexity Of The World May 22, 2012

“Acknowledge the complexity of the world and resist the impression that you easily understand it. People are too quick to accept conventional wisdom because it sounds basically true and it tends to be reinforced by both their peers and opinion leaders, many of whome have never looked at whether the facts support the received wisdom. It's a basic fact of life that many things "everybody knows" turn out to be wrong.”

If You're Smart, Put Your Money Into Anything Related To Agriculture May 28, 2012

"Nobody wants to farm any more. Yet there are more people than even now. Seven billion of us....Fewer and fewer people are producing more and more food for more and more of us. That's only going to get worse over the next 20 or 30 years. So if you're smart, put your money into anything related to agriculture."

http://jimrogers-investments.blogspot.com/

Scott Grannis said...

Re: (puffer) the end of the Euro. While it's not impossible, correctly predicting the total collapse of the Euro requires that a long series of heroic assumptions be met. The consequences of a collapse of the Euro are dire, and so dire that I doubt that governments will blindly follow the path described in this article. Most important is the fact that this scenario is not all that difficult to avoid, providing governments are willing to cut back their size. And if governments are not willing to do so, then the people may demand it, since that would be a far easier solution than currency debasement and devaluation. The Germans understand this very well.

Squire said...

To Unknown:
The land value tax is called property tax. It means you never own your home. You rent it from the county government. Retired people on a fixed income are forced to sell when the county raises assessed values.
The VAT is bad because it hides the tax.

Re William: I will be the third in my family to build a green house this summer and I will be the first to attempt to grow summer vegetables in the winter. These will be good for bartering with. It is very hard and time consuming to grow things and the rate of return can easily be negative.