Over the years I have frequently pointed out what a stupid indicator the Conference Board’s Consumer Confidence indicator is, at least when it comes to the stock market. It’s like a dog chasing its tail. The Con Con, you see, follows the market. Then, each and every month for a half hour or so after the data is released, complete with all the positive spin that the Con Board and the media can muster, the market follows the Con. The Con Board’s objective is, of course, to sell $2000/year subscriptions to its data services, for which it gets millions of dollars of free publicity from the media when it releases the monthly Con Board Con Con press release on the Con Con Index.
It’s quite a racket. I wish I could do that.
The collecting and reporting of this data is really a huge waste of time and money. But it’s a big part of the financial infomercial media con, so the Con Board goes on collecting the data and reporting it, and the media-market circus goes on. And when there was some useful information to be gleaned from it, the Wall Street “experts” elected to ignore it. Ignoring, after all is what they do best. Well, maybe second best. Lying comes first.
Let’s look at the history.
The chart below depicts the Con Con Con versus the S&P 500 and Census Bureau existing home sales price data going back 15 years. Since that time, it’s pretty clear that the Con Con simply is a measure of people looking in the rear view mirror at what happened in the stock market over the period just before the mid month survey cut off date. On those occasions where the market made a major turn, the Con Con followed. Prior to 1994, the Con Con tended to follow the housing market, which occurred again in 2007.
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So isn’t it silly when the financial infomercial media reports the data with baited breath, and the market reacts emotionally to the press release. The fact is that all we need do is look at the market’s performance over the past month or so, and we’ll pretty much know how the Con Con number will look, and we can guess from that how the market will react for that half hour. I would imagine that there are more than a few day traders out there laughing at this as they scalp that trade every month.
There was one notable exception. In September 2007, the Con Con actually broke one month before the market did. Likewise, when the market was blowing off from July 2006 to July 2007, the Con Con, while rising, was somewhat muted in its response. In that regard, the indicator was forewarning that consumers were beginning to feel a pinch, but not enough to keep the index from rising slowly as the sheeple kept one eye on the market’s rise and thought that maybe “everything was gonna be all right”. (Continued below)
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Clearly, however, a whole lot of people were worried. This was most obvious from the comparison of how people felt in 2007 versus how they felt at the top of the market and the economy in 2000.
The Con Con has two components, which are combined into a composite index. I found two charts at Market Harmonics which illustrate these components, to which I have added a few lines above. The two components are Present Situation and Expectations. Present Situation tends to have a slow moving stable trend since most people don’t have much difficultly telling how they’re doing economically. The Expectations Index tends to be volatile as people’s outlooks swing with the stock market or as in 2007, the housing market. What broke the back of the Con Con in September of 2007 was the beginning of the end of the housing bubble. That led expectations. As liquidity began to dry up as a result, the stock market followed, rather than led, in this instance. That drying up of liquidity also impacted the reality of people’s “situations.”
At the March 2009 bottom we got back to “:normal”. The stock market turned that month. The Con Con turned in April, led by the huge boost in expectations as the crowd followed the tape. Notably, their present conditions had not improved at all.
There’s something else that’s interesting about this data. The Wall Street establishment distribution network and its media shills are fond of repeating the lie that virtually no one foresaw the troubles we’ve seen. If that’s true, aside from one or two economists, a whole bunch of bloggers, message board posters, and the bear community in general, why did the monthly survey of ordinary consumers top out in 207 nearly 30% below the peak level reached in 2000? Obviously there were a whole lot of ordinary people who did know that something was wrong.
Where were all the Wall Street economists? They were blinded by their own hubris and stupidity. Had they looked at this data, should not this massive, extended divergence in consumer opinion have clued at least a few of them in that something was terribly wrong. After all, this was not a one shot flash in the pan. It was a persistent trend indicating that whole bunch of people were doing less well than they had done 7 years before. Why weren’t the Wall Street pundits tipped off? Because they were drunk with egotism and greed. They were too busy promoting their precious bubble.
For now, we have another uptick in consumer expectations as the crowd follows the market. It looks a lot like the 2003 bottom. The con is working again. But we have to wonder what happens when the stock market experiences its first correction off this rally.
Likewise, Case Shiller reported gains in housing prices in the second quarter. The chart above shows census bureau data through June. It’s not showing any uptick. I track the NAR data in the Wall Street Examiner Professional Edition Fed Report, and it is showing an uptick in the second quarter, but prices edged down in July, and the uptick off the low was nowhere near the level needed to break the downtrend in prices that began in August of 2007. That’s the break that led the Con Con. What if, this time, the reports of a housing recovery prove greatly exaggerated?
I suspect that we’ll have the answer to that within the next couple of months. Meanwhile, the market will continue to chase its tail each month when the Con Con con hits the tape. And the Wall Street experts will continue to ignore and lie about the data that really means anything.
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