Thursday, August 5, 2010

The Death Zone

This week's title of the ABC News Consumer Comfort Index is not encouraging: Consumer Confidence: Into the Death Zone. Here are excerpts:

Consumer confidence matched its low for the year this week, with the ABC News Consumer Comfort Index extending a steep 9-point, six-week drop from what had been its 2010 high.

The weekly index, based on Americans’ views of the national economy, the buying climate and their personal finances, stands at -50 on its scale of +100 to -100, just 4 points from its lowest on record in nearly 25 years of weekly polls, set in December 2008 and January 2009.

Underscoring its current deep weakness, the CCI has been -50 or lower just 27 times in 1,284 weekly polls – all but one of them since August 2008. (The other, February 1992.) It's in effect the death zone for consumer sentiment.

The CCI has been this low twice previously this year, in February and April, then advanced through late June before turning back down. Compare -50 to its 24-year average, -13.

It is a commonplace to point to other consumer and small business data that sadly all point to the same result: big company profits are high on the back of cost-cutting and perhaps good demand from other than the U. S. or Western Europe.

With oil prices now above $80 per barrel and housing on its backside, the Ins in Washington have to be sweating, no matter where they are this summer. After all, they stimulated! But it's looking more and more that the public is agreeing with the view consistently held at this blog that is was "stimulus" rather than real stimulus. And the Fed's money-printing stayed too much within the semi-hermetically sealed financial system, pushing up asset prices much more than the real economy.

Unfortunately, this is not 1979-80, where new ideas and policies were afoot. It is certain that the Republicrats will emerge victorious in the November elections. Or perhaps it's not so certain: perhaps it will be the Depublicans. In other words, the Establishment will win again, and the Bushbama Continuity of government-Big Finance working together to prop up asset values rather than focusing on allowing the real economy to work things out with a minimum of government intervention will likely continue. At least until the next major crisis.

In any case, the view here is that since the only bubble is that price to earnings of cash, which the authorities promise will remain in bubble territory indefinitely, the other trends that are extant are likely to stay extant. These include uptrends in gold and meandering in stocks, with risks tilted to the downside for the latter; and a counter-intuitive emerging bubble in increasingly longer-dated Treasuries.

Of these assets, the only one that I personally have any real confidence in is gold, and this is sad, because I have never been a gold bug. The devil made me do it!

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