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US Confidence: Another Lower-High...

Coming in at a reading of 65.7, this morning’s Michigan Consumer Confidence number was “better than expected.” The market hit her intraday this morning high on that narrative and has since backed off. That said, the question is why do we care what the Street’s consensus economists “expect”?

We do, but we don’t. We need them to stay in business, but we don’t need to invest alongside their opinions. Using the Street’s consensus macro expectations as a backboard for contrarian investing has been the winning strategy for the past 18 months. Long live Bank of American Merrill Bulls!

If you go back to when all of levered confidence/nonsense started (2006-2007), you’ll see our point.  In the chart below, Andrew Barber and I outline the context of lower-highs.

While it’s true that Consumer Confidence readings of 55 to 70 are abnormal relative to what we have seen in the last 30 years (we called the bottom in confidence in Q1), it’s also true that the US Consumer understands what pending stagflation means to their wallet. The only sustainable breakdowns to the 55-70 ranges in US consumer confidence have come in the late 1970’s and in the 2008-2009 period where oil prices have traded to where they have.

The US government doesn’t want to draw the red line that we have in this chart. But then again, Larry Summer and Christina Romer are running the financial side of Washington forecasting and they have started citing Wall Street’s consensus forecasts as “blue chip.”

The only blue I see in this chart is the color code separating the sad reality of the red line. Contrary to consensus Washington expectations, the American consumer isn’t stupid. Burning The Buck doesn’t get the American Savers and Consumers paid.

KM

Keith R. McCullough
Chief Executive Officer

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