The ABC News Consumer Index was released yesterday, and showed a sharp drop in confidence, with noticeable declines in "buying climate" and personal finances.
The news release is in PDF format and cannot be cut and pasted to this blog. Please click on the link and examine the graph on page 3. The obvious pattern is that the pattern of consumer confidence from the immediate pre-recession year to the end of recession (or depression) is so far looking just like that of the first of America's so-called jobless recoveries in the early 1990s. We know how that story ended, with the employment and investment boom of the late '90s.
What are the chances that the economy and the public mood will soar throughout this decade as it did in the '90s?
The main differences between then and now are that then there was the victory over the USSR with the coda of a smashing victory over Saddam Hussein in a war paid for by creditor nations such as Japan and Saudi Arabia.
At home, there was the aftermath of the S&L mess, but public confidence had not been shaken as fundamentally as now.
Team Obama may be not only talking the deficit reduction talk, but if healthcare reform goes through as planned, there will be up-front taxes, and there may be taxes/fees on the financial industry following the bailout. Meanwhile, the yield curve is as wide in absolute terms as it was at the end of 1992. Treasury yields plummeted shortly thereafter and the stock market, which had moved up sharply from its 1990-91 bottom, didn't stop for years. So perhaps some gloom about Federal improvidence might lift at least a bit (we can hope, can't we?).
The Conference Board Leading Economic Indicator has now exceeded its prior high level of mid-2007. (ECRI's equivalent indicator has not set an all-time high but is at a post-downturn new high.) Dr. Goldstein of the Conference Board stated this month: "The indicators point to a bright new year."
Because my own immediate reaction to that statement is to doubt it, and as the confidence numbers show, I am hardly alone, it's important to recognize that circumstances do change. We have the S&P 500 roughly a quarter off its high while the leading indicators used by the Conference Board are at a record. Could undue pessimism be embedded in certain stocks?
I am thinking that this could well be so, considering the meager alternatives for financial assets.
High-quality stocks share in the abundant systemic risk, but so much hot money has flowed into the speculative stuff that was beaten down a year ago that it could be that the average stock goes down while the Chubbs, Tevas, TJXs, and Oracles of the world trend up a bit and perhaps more than a bit. Unlike Federal and municipal debt, and is more or less the case with gold, there is no new supply of stock in these enterprises hitting the market for now, so oversupply is not the issue. Overvalued though the overall stock market is by many fundamental criteria, cheap short money rates and supply-demand characteristics can add to reasonable P/E's and dividends equaling or exceeding returns on cash or 2-3 year money may make high quality equities good investment vehicles in the months and years ahead even if they are swimming with overvalued lower quality shares.
Those such as yours truly who compare the U. S. to Japan post-bubble bursting should note that Japan's stock market was at its peak more overvalued than ours at its peak and kept hitting what now look like frothy levels for many years thereafter.
Cash is trash, Uncle Sam is a beggar, double-dip and systemic fears (if indeed the downturn is even truly over) abound, China may explode or implode, etc., and high-quality stocks have grievously underperformed the market. And unlike gold they even pay you to hold them. Might this be their time in the sun?
As more and more of them break out to all-time price highs with reasonable to low P/E's and charts that show a strong base, the case for that grows, just as it did with gold last summer, which surged over 15% in almost no time after it exceeded its prior high price of 2008,
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