There’s been plenty of news today to talk about. There was the GOP debate in Iowa where we’re starting to see some actual differences in the candidates instead of the uniform “we’re not Obama” responses. Now is when the herd starts to get thinned and we see the real contenders.
But that was yesterday and this is today. Right at the start of the day we had two big, if conflicting reports come out. The first is Thomson Reuters/University of Michigan preliminary index of consumer sentiment report. This was a shocker. I’ll spare you with the numbers, but it was the lowest level since 1980—more than three decades and goes back to the Jimmy Carter years. Now, when I think of Obama and Carter, I am reminded of Rush Limbaugh comparing this term of Obama as “Jimmy Carter’s second term”. Well, there we are. We’re as confident as we were during the Carter years.
Now there’s one main reason for this right now besides the obvious fact that we’re not reducing the current available labor pool (unemployment rate). The main reason we’ve taken such a huge hit is due to the last week’s performance of the stock market. This movement wasn’t all that unexpected, however. There has been no substantial improvement in the economy in the past two years with the exception of the stock market. And the only reason that the stock market had surged was due to Fed programs such as QE1 and QE2 (quantitative easing programs that flooded the markets with cheap cash). Once those programs ended, we saw huge selloffs: once last summer at the end of QE1 and again last week after the end of QE2. QE2 actually ended at the end of June, but the markets have been in a holding pattern waiting to see if there was going to be another program. When it was seen that there wasn’t going to be any, the selloff began.
Then we had the debt deal shortly after which did nothing to help alleviate our current debt. So Moody’s downgraded the US outlook to Negative and the S&P downgraded the credit rating from AAA to AA+. More selling ensues. Since then, it’s been a roller coaster ride of 400-pont gains and losses for the DOW.
For a bit more in-depth look into the consumer confidence report, think back a couple weeks ago. The DOW was well over 12,000. The high for the DOW in 2007 was securely past 14,000. Did it feel like the DOW was at 12,000? It certainly didn’t to me. The unemployment rate (which is a dodgy number to begin with) has not improved. Our government continues to spend. Stimulus proves to be futile. Our economy is stuck in neutral. I feel like the Coyote chasing the Roadrunner off a cliff yet I’m still running. Then I realize that there’s nothing under me to keep me afloat. Down I go.
But there was another report out today as well: a rise in retail sales. The market chose to act on this report even though from my perspective the consumer confidence report should trump this one. Perhaps it’s because with all the selloffs, the market is seen as being at a discount. Or that real dollars spent is better data than a measure of metaphysical sentiment such as consumer confidence. But for me, the consumer confidence report made the retail sales report quickly obsolete.
Just some quick thoughts on a couple other items in the news, the Appeals Court for the 11th Circuit ruled that Obamacare is unconstitutional. Specifically, they ruled on the part of the bill that mandates Americans buy health insurance. All other parts of the bill seemed fine to them. This is a bit of a blow to the White House, however not completely unexpected. All parties know that this is going to the Supreme Court for a final showdown. These rulings do serve a purpose as the Supreme Court will be reviewing these rulings to assist in their own ruling.
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