I am having a hard time reconciling the claims of excess sentiment with lots of other data and anecdotal evidence. Consider for example this Bloomberg article, with the telling title Americans Say They Missed 73% Rise in S&P 500 as Economy Surged.
Of course they missed it! They were either a) listening to Wall Street analysts and strategists; 2) were watching financial TV coverage of the crisis; III) were normal emotional Human Beings unable to detach themselves from their own neurobiology.
In all three examples above, the related thread was the behavior of organic matter. When it comes to investment, Carbon based goo tends to be a poor element in the decision making process.
Here is an excerpt:
“Americans are down on the economy and the markets even as stocks and growth indicators are up.
By an almost 2-to-1 margin Americans believe the economy has worsened rather than improved during the past year, according to a Bloomberg National Poll conducted March 19-22. Among those who own stocks, bonds or mutual funds, only three of 10 people say the value of their portfolio has risen since a year ago.
During that period, a bull market has driven up the benchmark Standard & Poor's 500 Index more than 73 percent since its low on March 9, 2009. The economy grew at a 5.9 percent annual pace during last year's fourth quarter.”
The most intriguing data point to me is the belief that the economy has worsened over the past 12 months. The public is technically correct; much of the data is modestly lower than it was 12 months ago. However, the rate of change is far, far less than it was. The parachute has opened, and the free fall is over.
However, unlike Phil Gramm, I cannot dismiss the public’s concern as a mere mental recession. The obvious missing element is job creation, and that is the most likely reason for the negative sentiment.
Public sentiment is a very important factor impacting spending decisions. I suspect that if we were to get three or four months of 100k plus job creation, that would go a long way towards moving the sentiment needle.
Until then, we meed to closely watch retail sales data for evidence people are coming out of their bunkers. I see it already in Manhattan, but we have lots of Wall Street bonus cash sloshing around. When the rest of the country feels better about the economy, it might create a virtuous cycle of hiring and spending . . . Or, hiring and spending will make the rest of the country feel better about the economy.
Either way, retail sales might be the early signal . . .
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Source: Americans Say They Missed 73% Rise in S&P 500 as Economy Surged Mike Dorning Bloomberg, March 24 2010 http://www.bloomberg.com/apps/news?pid=20603037&sid=aTp.Sf7cvYvU
See also: New York Helicopter Commute for $200 a Day Signals Revival Esmé E. Deprez Bloomberg, March 26 2010 http://www.bloomberg.com/apps/news?pid=20601109&sid=aWz55bmEsxa8&
Once bitten, twice shy.
“Carbon based goo tends to be a poor element in the decision making process.” Oh please! The Fed’s zero interest policy for the foreseeable future has only one ‘objective’ meaning: we are on the edge of the financial abyss for the foreseeable future.
BR:
It’s myopic to equate Wall Street’s fortunes with those of common folk or the broader economy. Step beck and look at the Big Picture. If this a return to normalcy, normalcy has been redefined (along with GAAPs).
While the US markets are up, the toxic derivatives have not been unwound, the “assets” on banks’ books are falsely valued and cannot be liquidated, and every penny imagined into existence has less value than the one that came immediately before it.
Poison Ivy starts out as green shoots, too.
We are years now into falling home prices. Some locales were a little behind the fun, as I’m just NOW noticing home prices falling in my area, central Alabama. Drove by a house friday nite that was interesting to me, so I grabbed one of the for sale flyers and noticed they are selling for 10% less than the purchase price in 2007. I feel strongly that they overpaid, based on what I know of the neighborhood they are in, but certainly this isn’t the only case locally.
Falling home prices aren’t going to do much for consumer sentiment either, even if jobs start to come back.
Barry:
This report at Calculated Risk indicates that the spending is coming from savings, not new income:
February Personal Income Flat, Spending Increases
BR,
You nailed it. Things are returning back to normal. Falling at a slower rate is great news. Falling more slowly is almost better than rising at any rate. Retail numbers will likely show people spending borrowed money using leveraged homes as an ATM. Being fully extended using your home as collateral for borrowed money is the natural state of humanity. Low interest rates should spur the sale of vacation homes and we should soon see a resurgence of home flippers.
Retail is going to be on a boom cycle starting about now. People love to spend money and buy things they think they need. Recreational purchases of useless crap is on the agenda.
Analysts claim job creation will be 300,000 monthly starting this month. They’re always understating the true case of the economy so 400,000 new jobs monthly will probably be the new normal.
The stock market is discounting all of this and appropriately rising in anticipation of a future trailing P/E of 30. When Wall Street bonuses get spent in NYC, the entire economy follows in lockstep. People love to imitate Wall Street folks. I plan to buy some boats.
PS: can anyone explain why analysts always have their estimates exceeded? Given the concept of the bell shaped curve, there should be a majority that get estimates right, and essentially equal numbers that understate and overstate. Yet, every quarter, estimates are universally exceeded for almost every bit of new. Why does this happen?
Somewhere is a family that stopped paying their mortgage and re-allocated it to the stock market beginning at the low. They are slow playing retail in case their bank decides to begin foreclosure, but they can’t resist just a teeny bit of spending on goodies. If the market begins to decline in earnest, they plan to sell and catch up on their deliquent mortage payments. Fortunately, the family members are still employed, so they can support everyday spending on food & fuel. For now, they fly under the radar.
“Among those who own stocks, bonds or mutual funds, only three of 10 people say the value of their portfolio has risen since a year ago.”
Wow~ That’s hard to believe..that’s from the Mar ‘009 lows (?)
wtg MutFund Mgr.s~
And don’t forget – the jobs the people ARE getting in many cases are paying less than the ones people had before, and very few people are getting raises of any kind in this environment, well, except for the folks on Wall Street, of course. Nice to have your entire industry subsidized, I guess. The New Welfare Queens sure do live well and in this case.
I see a “Is the stock market topping out?” headline on Yahoo/Marketwatch today and a few similar headlines recently. Not a good sign for my short POSitions.
“By an almost 2-to-1 margin Americans believe the economy has worsened”
I run a small ($25M) business and the economy is not improving for me. 2008 was 30% worse than 2007. 2009 was 33% worse than 2008. 2010 is showing eerie similar trappings. I belong to a golf club that is dominated by small business owners from all types of service/retail etc.and the reports are almost exactly the same. Business is down 30% to 50%. Nobody has plans to add staff. I just don’t get the improving idea. Job creation is the key. Retail sales might be a good first step but if the job situation doesn’t improve retail will slip right back where it is. Off!
I think that this equity rally is still a fake one – it is bid up among banksters on state subsidies and hedge fund players. But hedgies are only players and they will turn around and short if they smell the tide turning. So this rally lacks in substance and volume, as the retail investor never joined.
Perversely the latter may be the reason for the continuation of the rally – hedgies and banksters need to unload their stocks that they bid up so far to the “dumb money”, before they can start shorting. So until the retail investor joins, the rally may continue as we have zero rates and fake accounting as an excuse to bid shares further up.
Things are returning to normal.
EXCEPT 1/10 can’t find job. And 1/4 house under water. SP500 back to where it was in late 90’s instead of early nineties.
Other than that – things are great. What’s not to love?
I think we are just one shock from a market crash, or at least a pull back. Most big cities have unsustainable spending obligations. Real estate, on both coasts, is way over-priced, at least the ones I saw this morning. Some smaller municipalities have already collapsed, when a big city goes, or a state, then the market will re-evaluate how it is pricing equities. Of course there is Europe to worry about too. Default in one of those countries has to, at some point, draw attention to our miserable situation.
If this gentleman is right, it would explain why the market is rising: http://www.aheadofthecurve-thebook.com/charts.html (got this from Barry’s “Blog Roll”
I don’t know enough about the US economy to pick apart Ellis’ reasoning, but going through all of his charts and comments was edifying.
@wunsacon I see a "Is the stock market topping out?" headline on Yahoo/Marketwatch today and a few similar headlines recently. Not a good sign for my short POSitions.
I thought the headlines were supposed to be incredibly bullish at “The Top” like GS talking up $200 oil and systematic lack of reinvestment when oil hit $140. has anyone spotted a “Bear” magazine cover lately?
BR, second request: Are there any Smart Bulls who can make an intelligent case for continued increase? Also wondering if it is possible to do a pole of market sentiment and market positioning for participants in this blog. Are the people talking bearish really short, or, just underinvested?
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