Consumer Sentiment

Further to my post on Consumer Credit last week.

http://tradersutra.blogspot.com/2010/07/consumer-credit.html

Fridays release of  preliminary Consumer Sentiment for June came in at 66.5. This was an awful print and a bad miss. Why in the world we still try to predict these things is mind boggling. I can't figure out what's in my wife's mind let alone what's in the mind's of hundreds of millions of people. Why do we have monkeys who try to predict a survey?

The only thing to look at is JOBS! What is the unemployment rate? What are the weekly unemployment claims? The U of M survey is valuable but the market should already reflect the bearishness. When we have monkeys predicting a bullish print and the figure is bad we have extreme selling in the markets. The reason the volatility and swings are prevalent is because we have these said monkeys who think they can predict behavior. Have we not learned from CDO modeling that it is next to impossible to do so? Why can't we just wait for the print without these predictions?  Its the lack of proper predictive tools that makes the volatility not the hit or misses.

The last time the University of Michigan Consumer Sentiment reading was at its current level outside of recessionary periods was smack in the middle of the non-recessionary blip in the early 80s. So in short, even though its just a survey these type of prints just don't happen often. When it does happen it happens right before a recession.  If you remember double dip recessions never happen except for? You guessed it the early 80's, 1982 to be precise.  So the last time this indicator was this low it portended a double dip recession.  How will the severe weakness be read now? You guessed it. A double dip recession that is almost a certainty because the ECRI is also collapsing at the same moment.  This economy has many head winds. Housing, Jobs, Credit. Deflation, collapsing bond yields, and lousy consumer sentiment.

Net. Net. We are at the same level we were at a year ago. At that moment we didn't know if we were out of the recession or not.  Also of note, the data is the sharpest drop MTM since October 2008. These type of drops MTM have occurred only some 7 times out of 390 total readings so take it for what its worth. 

Many market participants like to make correlations between sentiment and stock prices. Sell when sentiment is high and buy when its low.

Did I happen to say that market participants are sheep? All I know is that buying stocks going into a recession is a recipe for death. Buy stocks at our peril.