U.S. consumers' mood rises in early May: survey

As predicted.

Via:  Yahoo Finance

By Chris Reese

NEW YORK (Reuters) - U.S. consumer confidence rose in early May to its strongest since the September failure of Lehman Brothers, with rising expectations the economy may be in the last stages of the recession, a survey showed on Friday.

The Reuters/University of Michigan Surveys of Consumers said its preliminary index of confidence for May rose to 67.9 from 65.1 in April. This was above economists' median expectation of a reading of 67.0, according to a Reuters poll.

The index of consumer expectations jumped to 69.0 in early May, its highest since October 2007 and up from 63.1 in April.

"Consumer confidence rose in early May as consumers became increasingly convinced that the economy is in its final stages of contraction, and paradoxically, that their personal finances would remain dismal and keep their spending at reduced levels for the foreseeable future," the Reuters/University of Michigan Surveys of Consumers said in a statement.

Confidence remained shaky overall however, with the majority of consumers in early May reporting their financial situation had worsened due primarily to income declines, shorter work hours and lost jobs, according to the survey.

The gauge of current economic conditions eased in early May to 66.2 from 68.3 in April.

"Yes we are still in a recession, but we may be in the stage of pre-recovery," said Andrew Richman, fixed income strategist at SunTrust Private Wealth Management in Palm Beach, Florida.

U.S. Treasuries were largely unmoved by the data, trading steady at lower levels while the Dow and NASDAQ stock indexes added to gains.

Ben’s first bubble

It is now clear, by our “animal spirits” lights and the granddaddy of all long-term momentum oscillators (see last two posts), that as it concerns Depression II, history is going to repeat as farce.

You cannot have the degree of simultaneous stimulation from monetary and fiscal policy that we have now without it hitting something, sooner of later.  As we sagely commented yesterday, it would appear that Ben’s First Bubble will be in the stock market.

This follows in the Greenspan (modern Fed chief model) tradition.  Old Alan the Appeaser’s first bubble was in the stock market.  As his first official act, Greenspan blew the Stock Market Bubble of 1987 that appears so like a mini-bubble to modern eyes, so quaint and harmless and quickly reflated.  Since the Crash of 1987 occurred at a time of very high, actually peaking, “animal spirits,” (see this) in our view the fabled Plunge Protection Team was entirely unnecessary—but what the hell, Arch, when you got an opportunity to blow up a bubble, you blow.  We’ve had bubbles in stocks, housing and commodities just in this decade.

So here is our view:  A tsunami of liquidity is going hit the stock market in a few months.  Why not housing?  Once burned, twice shy, plus they’ve tightened credit so ordinary folks can’t play the leverage game the rich can play, and the securitization markets are dead and the banks won’t book the trash.  Just when we beginning to have fun!  Why not consumer goods—good old-fashioned inflation?  Too much labor market fear and slack, dummy!  People are taking pay cuts, for crying out loud!  Sure, we’re starting to see stagflationary increases in commodities, like food and energy, but they don’t count, stupid!  They’re not core [inflation]!  Why not commodities?  We’ve got supertankers sitting off Singapore harbor inventorying oil, that’s why!  Glut glut glut!  So what does that leave?  The stock market!

Now, I feel the pain of the investment bankers who’ve lost their world as much as the next guy (not much), but there’s still Goldman and Morgan Stanley, and I know that other at-liberty IBs are joining hedge funds.  Yes, the big money folks are applying their blades to their whetstones in anticipation of extracting further wealth from the American economy.  At some point someone’s going to make a killing shorting the American dollar (not anytime soon, in our view) while blaming the entire thing on the American government.

We urge President Obama and the Congress to consider addressing the needs for food, shelter and health care for the American people, because the next crisis is going to be worse than this one, and you, Mr. President, and your bought-and-paid-for Congress, bless your hearts, do not have the power to stop the big money vandals from gutting our economy again.  And how about raising marginal tax rates on incomes over $1 million to 90 percent to bring these people down to earth?  What do they think they are, gods?  This is getting old.

We hope to be proven wrong. 

Peace.

The granddaddy of momentum oscillators

The Coppock indicator is the granddaddy of long-term momentum oscillators.  When it turns up from a negative reading, the stock market usually enters a bull market.  The one false signal in the postwar period was given in this decade, in 2002, but after a stutter, the market recovered and was higher three years later than at the time of the false signal.  The Coppock indicator is at its lowest level of the postwar period, but has not turned up yet.  Given the strength of the recent run-up, I’d kind of expect a stutter-step before we get Ben’s First Bubble continuing in the stock market.  The Coppock curve is below, gratis.  This is another indicator of pent-up yin-yang. Let the panic buying begin!  Just remember:  bulls make money, bears make money, pigs get slaughtered in the next down leg to new lows.

Click to enlarge.  This is research, not investment advice.  Trade at your own risk.

‘Animal spirits’ in America and the stock market oscillator

Yesterday we introduced the “animal spirits” stock market oscillator that shocked us with its apparent prediction of a “real” bottom in the stock market.  (Remember that our models are literally models of emotion, not rational decision making.)  Today for your viewing pleasure we offer a graph of the consumer confidence measure together with the stock market oscillator.  What it shows is remarkable:  the current simultaneous apparent bottoming of the confidence indicator and the stock market oscillator is a fairly rare occurrence.  Since 1960 it happened only in 1970, 1974, 1982, 1990, and with the stock market bottom lagging the real economy bottom, in 2001-2002.

Click to enlarge.  This is research, not investment advice.  Invest at your own risk.

What would drive this rally?  Sheer liquidity, just like all the other rallies recently.  There are trillions of dollars on the sidelines.  Helicopter Ben is printing money like mad, and there’s a huge carry-trade opportunity for well-heeled borrowers.  If the market makes a massive head-and-shoulders top between now and 2011 or 2012, the next crash will probably be worse than this one—just as the 1973-1974 bear market was worse than the sharp 1970 bear, and was followed by the 1980-1982 double dip, recessions that quenched the ‘Sixties guns-and-butter inflation.  It will take several market crashes and failures of effective demand to wring the bad debt out of the system.  Activist macroeconomic policy, thy name is Volatility.

The current situation is that Americans are tired of being down (“been down so long it looks like up to me”) and their “animal spirits” are rebounding.  This rally is a dangerous bear market rally with the ultimate bottom still years away.  Our long-term view is that we Americans are going further down and must confront and defeat our deepest demons of greedy national identity to emerge safely.

So the next inflation, it seems, will be an asset inflation (“Ladies and gentlemen, place your bets”), a super-suckers’ rally that will probably end up transferring wealth from working people to Wall Street, contributing to the expropriation of the assets of working Americans in the monetary shell game run by the Fed, and leading to the critical distributional inequities that we believe will precipitate the next great American crisis.

Introducing the ‘animal spirits’ stock market oscillator

As a relatively new blogger, we have been judiciously restrained in our pronouncements on the stock market, the Great Casino of our highly leveraged times.  However, today we are going to reveal for the first time our “animal spirits” stock market oscillator, that uncovers the secret inner yearnings of the stock market.  And guess what?  Just as yang follows yin, and the “animal spirits” of Americans are irrationally improving according to our general confidence model, the “animal spirits” of the stock market are poised to go—absolutely berserk, if our model is correct!

Now, this result surprised us, as we are in the perma-bear camp on the long-term prospects for our beloved country that seems to be in the throes of being gutted by Wall Street oligarchs while assuming further levels of indebtedness requiring future taxation that will almost certainly provoke a second American Revolution in a decade’s time or so.

But, as we’ve said before, spring has sprung, and the stock market appears ready to blow a gasket.  Or to continue to blow a gasket, given the run-up so far.  This is shocking!  Welcome to the Eternal Bubble!  As the physicists say, the universe is just a bubble in the quantum foam, so why shouldn’t the stock market bubble on? 

This is research, not investment advice.  Trade at your own risk.  Click to enlarge.

Left axis is log(SPX), right is A, the '”animal spirits” metric.

Biden insults President Obama’s dog at Syracuse

Our more discerning readers may have noticed that our mascot, Tyler (to the left, not a picture of the author) is a Portuguese Water Dog.  President Obama’s new dog is a Portuguese Water Dog.  Vice President Biden has a new dog as well, in the fight, so to speak, which (speak) the Veep did, in Syracuse, insulting the Presidential pooch quite handily, before backpedaling as quickly as he could.

Via: Christian Science Monitor

It was as though Vice President Biden time-warped back to last fall. Because on Sunday he was in full campaign attack mode.

Oh, it was an idyllic setting. Nobody saw it coming. The vice president had just finished delivering the commencement address at Syracuse University and stopped by to chat with students at Bellevue Elementary School.

During the intense question and answer period, one child asked the vice president if he had ever petted a dog.

“Yeah, but guess what? I’ve got a dog that lives with me,” Biden replied. “The smartest, coolest dog in the world.”

Normally, you’d leave it at that. You’ve praised your dog. Why denigrate another?

Because in campaigns you have to differentiate yourself from your opponent. And campaigns are in Biden’s blood. That’s when he let it be known that Bo Obama was a dolt.

“The new dog I have is only five months old and his name is Champ,” Biden told the schoolkids.

“My dog is smarter than Bo, his dog,” he jabbed.

“I think so,” he taunted. Yeah, I do.”

An astute politician, Biden apparently didn’t want to be seen as a mudslinger so he conceded that “Bo’s a beautiful dog too.”

To watch the full shocking video, click here.  To understand what Vice President Biden meant to say, watch Robert Gibbs’ press briefing tomorrow.

‘Animal spirits’ and risk premia update

“NegA” = –A, our “animal spirits’ metric.  The risk premium (RP) is the Moody’s Baa - Aaa  spread.  We continue to see an exploitable trade going long the high yield and short the investment grade.  As pointed out in yesterday’s update, we see a high probability of the economy stabilizing and growing (slowly) over the coming year, which should promote confidence and a lowering of risk premia.

This is research, not investment advice.  Trade at your own risk.