Consumer confidence in freefall

Wow!  The Conference Board reported this morning that its calculation of February Consumer Confidence plunged a whopping 10.5 points, down to 46.0.  This is the lowest level since April 2009.  This mark is dramatically lower than the level expected by economists of 54.8.

Analysis: Well I have been saying it on the blog now for quite awhile and in many postings:

• “the asymmetry of market rises and falls” at http://jasonapollovoss.blogspot.com/2010/02/asymmetry-of-market-rises-and-falls.html
• “it’s the unemployment rate stupid” at http://jasonapollovoss.blogspot.com/2010/02/its-unemployment-rate-stupid.html
• “big financial markets fall” at  http://jasonapollovoss.blogspot.com/2010/02/big-financial-markets-fall.html
• “employment situation still treading water” at http://jasonapollovoss.blogspot.com/2010/02/employment-situation-still-treading.html

Consumer confidence was likely to drop because the unemployment situation has shown no signs of improvement.  Now we have statistical verification of what was an intuitive insight on my part.  Consumer confidence has fallen 18.6% and the number was worse than economist expectations by 16.1%.  Clearly this is a very bad sign for the future of the economy.  Consumers make up around 70% of Gross Domestic Product and when they don’t feel good about their lives they tend to hunker in the bunker.  Ergo, they don’t spend money.

This is the very catalyst that I described in my posting just one week ago.  It will be very interesting to see what happens to the financial markets in response to this news.  If there is a large drop, say several hundred points down, I would consider this to be a rational response.  This will be a strong indication that investors remain sober – a good thing.  If there is only a weak decline then I will worry because it will be an indication of irrational exuberance (as Alan Greenspan so famously called it).  The problem with irrational exuberance is that eventually a catalyst will cause a massive sell-off.

Importance grade: 10; I consider this news to be second only to the actual unemployment rate.  The fact is that we sit teetering on the edge between economic recovery and economic disaster, all driven by the mood of your average U.S. citizen.  The news today was definitively not good.

If you followed my advice last week and are in either cash or low-investment quality bonds right now – it is time to start looking for equity opportunities.

Be careful out there!

Jason