10/28/2009
By Charles Payne

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"We will rebuild, we will recover and the United States of America will emerge stronger than before"- Barack Obama

At the beginning of his presidency Barack Obama was urged to take a more upbeat tone by many political observers including former president William Jefferson Clinton.  And I think the tact worked as small green shoots were talked up and had a domino affect on confidence.  As I've written many time this year that bump in confidence was mostly in the component that covers the future down the road otherwise known as expectations.   But lately that component has begun to suffer.  Initially I felt it was a direct correlation to the overall approval ratings of the president but while those numbers have come down the pace of the decline is nothing like what's going on with consumer confidence.  There is also speculation the drop is a result of the job market but even there is would seem job destruction isn't matching the destruction of faith. So my question is...

...Why are people losing faith?

I have to believe people must feel the walls are coming in on them.  We know businesses and banks are hording money in part to the great unknown and households have been trying to repair their balance sheets but why the lack of optimism for the future.  This is an American trait first observed by Tocqueville and more recently expressed by British comedian Ricky Gervais creator to the television show "The Office".  When asked about the difference between British humor and American humor he noted the latter group was smarter but then he got to the heart of the matter with several comments about Americans in general including:

• "More ambitious"
• "More optimistic"

And he went on the say he must have been born American because he felt "it will be alright".  I think it's a problem when we start to believe it may not be alright.  Ironically, even as I've railed against the obvious attempts to change the DNA of this country and make it something its not and something it doesn't want to be I still feel like it will be alright.  That is what the powers that be molding and shaping changes want because it leads to a kind of apathy in many.  On the other hand others are free to anticipate their new role in this nation where everything feels like its being turned upside down.  It's tough to be motivated or have faith when it seems the harder you work the more you owe society and the less you work the more society owes you.  The masses are beginning to feel something even if they can't put a finger on it.  They don't understand forecasting models or have to anticipate cash flows and earnings like those banks and big businesses but something is telling them things aren't right.

Of course consumer sentiment surveys aren't exactly economic data and often what people say they feel and what they actually don't match.  But there is something to be said about self-fulfilling prophecies.  People have to feel better about the future in order for the future to be brighter.   Therein lays a serious problem with banks hoarding money, businesses putting off investments and cutting jobs and consumers falling into a state of depression.  It really is a good thing the stock market has rallied because it's really the only think that's working in the economy.  The number of Americans that believe we will recover is shrinking and I bet the number that wholeheartedly believes the nation will be stronger is even a smaller figure.  So, when does this all change?  Will it all change?  And I guess the bigger question is what implications does plunging confidence have for investors.

Consumer Confidence Crashes

Yesterday's report from the Conference Board saw the headline confidence number come in at its lowest level since 1983.  The street was looking for 47.7 from 53.4 in the preceding month while consensus was 54.0.  The expectations reading took a dive to 65.7 from 73.3 month over month. 

We can't dismiss the trend out of hand because historically consumer confidence leads market turns and direction. 

Consumer confidence is limping along weighed down by economic uncertainty and a tidal wave of spending, wealth redistribution, rules, regulations and so many other factors that have nothing to do with jobs and prosperity.  Americans believe by nature but they are sure what to believe these days. 

Charles Payne
Wall Street Strategies