Tuesday, March 26, 2013

Confidence: half full or half empty?

The Conference Board today reported that its March index of Consumer Confidence was much lower than expected (59.7 vs. 67.5). How should we interpret this?

My preference is to first put things in the proper perspective. That requires a chart like the one above.

Here's what I see in the chart: 1) this series can jump up or down by 5-10 points almost every month; therefore one month's datapoint does not tell you much at all. 2) the current level of the index is very depressed from an historical perspective, being at approximately the level that prevailed during the depths of the recessions in the early 1980s and the early 1990s. 3) the index has been rising, albeit irregularly, for the past four years.

I therefore conclude that what this indicator is telling us is that conditions, as perceived by the public, are gradually becoming less bad. Less bad, because confidence is still very low, and because things were even worse on balance for the past several years. So the proper way to see this is that pessimism is receding, not that optimism is rising.

This helps us to understand that the rise in the stock market is being driven much more by declining pessimism than by rising optimism. Put another way, the future has not turned out to be as bad as had been expected.


Gloeschi said...

Brilliant. Nobody spins news better than Scott. Time to buy more Apple on margin?

Benjamin Cole said...

We need a rip-roaring recovery, some old-fashioned boom-times and Fat City.

This slo-and-go approach is actually the dangerous course to take.

There is every risk of another recession, while we are still at zero bound.

Then federal deficits will soar again.

It is called Japan.

The Fed should print money aggressively.

Structural impediments?

Explain the 1960s.

90 percent top income tax rate.
50 percent of workforce unionized
Regulated banks, rigged airlines, tracking, trains, phones, Wall Street, you name it.
International tarde was nothing.

It was boom-times baby. The Fed was aggressive. The 1960s were great. Real per capita incomes up 30 percent.

Yes, we got inflation at the end. But structurally, the economy is far better today than then.

The Fed is diddling for no reason.

steve said...

scott, you are a man of infinite patience. I would have long ago put all comments by Gloeschi-which are always sardonic- on the auto delete button.

McKibbinUSA said...

When I look at the chart above, I conclude that consumer confidence is off significantly and substantially over many decades -- that's good news for those converting world-class skills into premium wages leading to acquisition of vast sums of dividend and rent-earning equities -- today's economy offers no free lunch for the masses, and massive opportunities for those with world-class skills and means -- the key to this 21st century economy is not to get left behind in the 99% crowd, but rather to undertake a determined effort to join the 1% club -- the times we live in are filled with incredible pessimism -- while many may believe the world is enlightening "Into White" (Cat Stevens), the truth is that the world is in a deep "Fade to Black" (Metallica) -- if investors can grasp the real politick of our turbulent times, the riches will come -- however, I urge the 99% crowd to remain under cover for the balance of the century -- said another way, members of the 99% crowd should seek refuge from the political and economic insanities and calamities to come by keeping good friendships -- we live in dark times folks, and I am terrified about the future -- the only true safety is to do whatever you must to get into the 1% club -- generally, that means acquiring world-class skills that sell for premium wages on the global economy -- I wish I had better news or advice for people living in 21st century -- again, seek to acquire world-class skills that convert into premium wages that enable acquisition of an vast portfolio of dividend and rent-earning equities over a lifetime -- just do it...

McKibbinUSA said...
This comment has been removed by the author.
McKibbinUSA said...

PS: Here is the music cited above:

Into White (Cat Stevens)

Fade to Black (Metallica)

My advice is to "hope for the best, but plan for the worst" -- I listen to both of these songs back to back to keep set my course in life...

theyenguy said...

An inquiring mind asks, what optimism?

Briefing.com relates In Italy, Bersani was unable to form a coalition government, making another round of elections increasingly more likely. And, the eurozone business and consumer survey was reported below expectations. In addition to this morning's worries surrounding the eurozone, investors remained uncertain regarding the playbook the European Union may be using next time a troubled sovereign needs emergency assistance.

Nation Investment, EFA, and Small Cap Nation Investment, EFA, SCZ, traded lower, as the European Financials, EUFN, led World Banks, IXG, the Too Big To Fail Banks, RWW, the Regional Banks, KRE, the Small Cap Revenue Stocks, RWJ, lower. Countries falling lower included GREK, EFNL, EWG, EWN, EWP, EWI, EWG, EIRS, EZA, EWL.VNM, and EGPT.

Sectors trading lower included, Wind Energy, FAN, Global Engineering, FLM,

Interest bearing sectors trading lower included trading lower include Water Resources, PHO, Telecom, IST, IYZ, Utilities, DBU, Shipping, SEA, International Small Cap, DLS, and Dividend Appreciation, VIG.

Natural Gas, UNG, traded higher on short sell covering to strong resistance.

The Steepner ETF, STPP, flattened, as US Government Debt, GOVT, traded higher, as the Zeroes, ZROZ, the 30 Year US Government Bond, EDV, the 10 Year US Note, TLT, and Mortgage Backed Bonds, MBB, took Bonds, BND, higher.

The US Dollar, $USD, UUP, rose and the Japanese Yen, FXY, rose, while, the Euro, FXE, the Swiss Franc, FXF, the Indian Rupe, ICN, the Australian Dollar, FXA, and the British Pound Sterling, FXB, traded lower, which caused major world currencies, DBV, to trade higher to 27.23. The Action Forex chart of the Euro Yen carry trade, the EUR/JPY, shows a strong trade lower to close at 120.46

Please consider that traditional carry trade investing, which is long currencies, and short the Japanese Yen, FXY, is coming to an end, as is seen in the chart of the Optimized Carry Trade ETFN, ICI, rising along an ascending wedge pattern; soon this will be falling sharply out of its consolidation pattern as the World Major Currencies, DBV and the Emerging Market Currencies, CEW, trade strongly lower on competitive currency devaluation, and the US Dollar, $USD, UUP continues higher, as the desire for risk assets evaporates, and the Risk On ETN, ONN, falls lower in value, as investors deleverage out of toxic debt such, as leveraged buyouts, PSP, High Yield Corporate Debt, HYG, and Junk Bonds, JNK, stimulating investors to derisk out of Global Industrial Producers, FXR, and stocks worldwide, VT.

The global economic paradigm of Liberalism is at a pivot point and is about to enter Authoritarianism, as the world central banks monetary policies of debt monetization and ZIRP, have crossed the rubicon of sound monetary policy, resulting in the exhaustion of monetary expansion.
Inflationism is turning to destructionism as the dynamos of global growth and corporate profitability, that have underwritten crony capitalism and eurozone socialism wind down; and the dynamos of regional security, stability, and sustainability, wind up, establishing regionalism.

The world is passing from being a credit and carry trade banker centric world to a diktat and regional governance centric nannycrat world.

pcpb participant said...

I'm not sure I completely understand theyenguy's comment, ...so many acronyms, ...but the gist seems roughly accurate in a macro macro sense.

Then again, if we had a "numbers genius," ...BusinessWeek's term for Romney, ...as president then we might have a much sunnier interpretation of the current era.

It's all about leadership, ...and tone, ...and voter wisdom.