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Posts Tagged ‘Consumer Confidence’

What motivates the stock market to go up?  Well, lately it doesn’t take anything of real substance. A great consumer confidence number could be the reason (even though the consumer confidence report gets the consensus of only 5,000 households), a reduction in the loss of jobs for a month(even though the Government accounting method greatly distorts the actual loss of jobs),  positive earnings reports that surprise the analysts (even though most of those profits came as a result of extreme cost cutting)…Then there are the times that  Ben Bernanke speak.  Yes, his words can move a market.  He did so just last Friday.

Ben Bernanke said what investors wanted to hear – that the economy is indeed on the verge of recovery – and they responded with a rally that sent the major indexes to new highs for the year (yahoo.com). 

Did it sound something like the following?

“Our forecast is for moderate but positive growth going into next year. We think that by the spring, early next year, that as these credit problems resolve and, as we hope, the housing market begins to find a bottom, that the broader resiliency of the economy, which we are seeing in other areas outside of housing, will take control and will help the economy recover to a more reasonable growth pace.”

As John Hussman points out in his weekly writing, this was what Bernanke said in November 2007 right at the beginning of the bear market.  If you are stock market invested, these shallow reasons are why the market continues to go up. 

I know that my bearishness on the stock market is probably getting old by now.  In fact, I feel a lot like I did back in 2007 when it seemed like you couldn’t find anyone who is bearish.  The market welcomes any positive economic news as the worst is behind us and everything is great going forward.    The headlines are looking better.  However, the fundamentals behind the headlines are awful.  You might even get some positive economic growth numbers here in the near future.  Growth as a result from printing money and the Obama stimulus package is not real good health growth. 

The Bottom Line – As we continue to go up in the market, the risk continues to increase.  Caution is still warranted.

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It really is amazing to me as I look over the latest consumer confidence numbers.  The prior month’s reading showed a better than 50% surge in confidence. This last month reported a 34% higher than expected surge again in consumer confidence.   The reason for the optimism, reports the conference board, is the “recent jumps in the stock market, low mortgage rates and smaller job losses.” 

Following the report of the confidence numbers, we see that home values fell 18% last month as foreclosures surged.  This sure doesn’t inspire confidence.   My favorite part of that report is the optimism over “smaller job losses.”  Remember that the stock market had a very good day once the May unemployment numbers came out showing a much better than expected number.   The loss of jobs was nothing like everyone feared. Of course, the Government estimated that 226,000 jobs were created that month.  That goes a long way to make the end result “look” as if the unemployment numbers are turning around.

So, here we go once again.  Although the consumer is facing enormous debt problems, the country’s future has been a mortgage away, foreclosures are in crisis mode, real estate is nowhere near the bottom, unemployment is not getting any better, etc., the consumer is confident.  Once those numbers were released today the market took off.  Investors were simply giddy over the new found confidence.   I realize that some of you might wonder when I might get some confidence back in these numbers and the system.  It will be tough for me to get overly excited when the system is broken and the numbers are highly suspicious.  Do you really believe that there is that much confidence?  Well, the stock market is making a big bet that those numbers reflect reality. 

There is a huge confidence bubble being created.  I wouldn’t want to be heavily invested when that bubble bursts.

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