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Would You be Confident?

Posted by Larry Doyle on August 14, 2009 3:33 PM |

I am an eternal optimist. I would also like to think I understand the fundamentals of the economy, and that I present a balanced approach here at Sense on Cents. So let’s pursue the truth.

The market is being hit 1-1.5% today on a retracement in the Consumer Confidence report this morning. While the equity markets have had an enormous rebound over the last few months, there is little doubt that the divide between Wall Street and Main Street has never been wider.

What impacts the consumer? In my opinion, the noise on Wall Street does not impact most Americans. What does? Job status, home value, and access to credit.  How are Americans feeling on these fronts?

1. Jobs: the underemployment rate of 16.3% is forecasted to move higher and stay high. A little disconcerting, you think?

2. Home Value: foreclosures are continuing to surge, home prices are continuing to trend lower, and no reason for slowing on either front. Not generating lots of confidence here.

3. Credit: hat tip to MC from Investor Rebellion for sharing a story put out the other day by The Wall Street Journal which highlights how consumers’ credit cards are being discontinued indiscriminately without notice. This report, Cardholders Get Rude Surprise at the Register, is a true sign of the times.

Think about this scenario for a second. How humiliating and unsettling would it be to experience having your card rejected without notice. Do you think these people are going to rush out to do more shopping? Do you think their confidence may take a hit just a little?

Why is Wall Street, which is making all this “supposed” money and handing out enormous guarantees to certain employees, cutting credit lines? What do these banks see on the economic landscape?

Wall Street economists and analysts may be confident about future prospects, but I have yet to see one of them effectively address any of these three concerns which most impact Main Street.

LD

  • Larry –

    I work in the trucking industry, as all of my clients are trucking companies. I can tell you from first-hand experience that the trucking industry right now is NOT in good shape at all. Freight is way down, and has been for almost a year. The trucking industry is a good barometer for the economy, as truck tonnage (freight) is very representative of economic activity, as you have pointed out before. The trucking industry right now is not showing signs of an economic recovery.

    • Larry Doyle

      Matt,

      You are the canary in the coal mine. Thanks for sharing this insight which is once again indicative of the the disconnect between Wall Street and Main Street, or perhaps I should say Highway 66!!

  • kbdabear

    That’s why the Bubblevision meme of inventory rebuild is a joke. Just in Time inventory systems have taken stockpiling out of the equation. If trucking activity isn’t picking up, there’s not a lot of inventory being moved nor are the factories getting a lot of orders for restocking.

    Of course, Washington and Bubblevision count on ignorance of things like this.

    BTW, S&P P/E’s are presently at 145, while at the height of the Dotcom bubble in 2000 they were at 45.

  • lizzy

    LD,
    I think that people are reacting not only to problems like unemployment and the loss of value of our homes, but the Obama administration is so corrupt that their programs to solve problems have no credibility. I am retired and get Social Security; I have a bunker mentality. I don’t want to do anything because I expect that the situation will get worse.

  • Larry Doyle

    I wish I had real reason to indicate otherwise but I don’t see it. The story specifically about credit cards being indiscriminately discontinued is very telling.

  • coe

    LD – though it is clearly a bearish view, I find your finger spot on the pulse of the consumer (let’s compare this reality to Obama’s misread of the collective will of the people re his health care program, for example)..the loss of a job – whether actual or at risk – is a very dominating concern…to watch the value of our biggest asset – our homes, lose value is both scary and depressing, and to experience the banks choking off credit is another blow to our psyche..you don’t have to be a weatherman to know which way the wind blows!

    • TeakWoodKite

      you don’t have to be a weatherman to know which way the wind blows!

      .

      tell that to a kite! 🙂
      Coe, I am surprised at how resilient the “green shoots” have become. It is very disturbing that in the face of our current economic reality, the rhetoric is one of perpetual good news.

      I am not picking on you LD for being an optimist. You remember when I mentioned that my sane half did not want to pay down the card because she was worried that they would roll back or shut the card off? There must an industry memo outlining if a card is not bring in sufficent profit vs the cost of servicing the account. I just finishing reading the Madoff indictment and this issue of credit cards being yanked has some odd similarities.

      It’s like the margin calls are being funded by lowering the liabilities and keeping the Bailout monies close to the vest. ( I know I am not saying this well, but I would not believe that there is not some industry wide inclination to adapt to the current conditions at the expense of main street.

      • Larry Doyle

        TWK…hard to believe how retail sales are going to increase when credit cards are being indiscriminately cut/discontinued by the banks.

  • kbdabear

    Is it the ABS derivatives that contain credit card debt? I don’t hear much of it in the media but we’re just now hearing of CRE problems due to the collapse of Colonial.

    • Larry Doyle

      kbdabear….there are a variety of derivative indices that track the the different segments of the market. The two most widely quoted indices in the consumer credit and mortgage spaces are those that track sub-prime mortgages and commercial mortgages. These indices are segmented by year of origination of the underlying loans.

      The commercial real estate problems are the next BIG shoe to fall. These loans run from the largest banks (JPM, BofA) to the small community lenders. along with loans on commercial properties you will start to hear more and more about construction loans which were used to develop properties. These loans will have a very high rate of default.

      What a world.






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