Normally, the consumer sentiment number that comes out each month seems like a piece of media fluff, far less substantial than, say, housing starts or the gold price. But today’s report is unusual enough to deserve a longer look. From MarketWatch:
Nothing happened, but the news was bad anyway
Commentary: Historic decline in sentiment comes almost without warning
WASHINGTON (MarketWatch) — It’s no secret that Americans are depressed. The economy is barely growing, job growth is anemic, raises are rare, house prices are falling, the stock market is down, and oil is spreading across the Gulf.
So, in one sense, it’s no surprise that the University of Michigan’s consumer sentiment index fell in July. See full story on the drop in consumer sentiment.
Markets Hub: Earnings euphoria fades
After an optimistic start to the week, stocks are deep in the red Friday as big name companies like Google, GE and Bank of America feed concerns about the pace of earnings growth. An undertone of discouraging U.S. economic data as well as the potential fallout from financial regulation is also weighing on stocks. Paul Vigna, George Stahl and Drew Dowell discuss.
But the magnitude of the drop — 9.5 points — was astonishing, and suggests that Americans may have hit some kind of breaking point.
The sentiment index doesn’t drop this much unless something really big shocks the economy and the national psyche. The shocking thing about this month’s decline is that nothing really shocking happened between June and July.
In the 32-year history of this survey, it’s fallen by 9.5 points or more on only six other occasions:
- October 2008: The month after Lehman Bros. collapsed;
- October 2005: The month after Hurricane Katrina hit;
- September 2001: The month terrorists attacked America;
- August 1990: The month Kuwait was invaded;
- March 1980: The month the stock market plunged and confirmed that the nation had entered a recession.Only once did the sentiment index fall so far without being accompanied by an event so big that it’s in the history books: December 1980.
In that month, much like today, Americans were anxious about the future of the economy, which had just emerged from a recession. They had elected a president who promised big changes, but the people weren’t quite sure what that meant, or whether the new policies would work. The market sold off. The economy dipped back into an extremely brutal recession soon thereafter.
History doesn’t repeat, of course. The drop in the sentiment index doesn’t mean a double-dip recession is in the cards, but it does mean consumers are fearful that everything is unraveling. They have no faith in government, or in business, or in the media, for that matter.
We could really use some good news right about now.
Some thoughts:
- The headline of the MarketWatch article is misleading. A lot is happening out there, most of it bad. Foreclosures are rising again, home sales are down (despite record low mortgage rates), empty commercial buildings are everywhere as video chains and other retailers close. And — the big one for readers of local papers — dozens of state and local governments are broke and threatening to lay off teachers, cops, and garbage collectors. The U.S. is rapidly becoming a Third World country, and people feel it even if they don’t always understand exactly how it’s happening.
- The designation of Americans as “consumers” still makes me uncomfortable. Why not compile sentiment stats for entrepreneurs or scientists or teachers or some other socially beneficial group, instead of putting shoppers at the center of the cultural/economic universe? Not that you’d get a positive reading from these other groups, but at least we’d be focusing on people who produce something of value.
So the real question isn’t why consumer sentiment is down, but why it was up in the first place.
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/charts/metals/gold/t24_au_en_usoz_2.gif)
![[Most Recent USD from www.kitco.com]](http://www.weblinks247.com/indexes/idx24_usd_en_2.gif)
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/charts/metals/silver/t24_ag_en_usoz_2.gif)
{ 27 comments… read them below or add one }
Terrorists didnt attack America – quit using the repeated false statements – but also notice it appears as of late that every 3 or 4 years something big happens – its called conditioning news.
Figures lie, and Liers figure
J
I agree with JR’s points, except the one about consumer sentiment being a poor barometer. First of all, scientists, teachers, and entrepreneurs are consumers too, so they’re subsumed, but – like it or not – if 65% of US GDP depends upon domestic consumption then how consumers think/feel/act matters.
That said, cycle theory and socioeconomics predicted this. In fact, as of April 2010 the sentiment cycle started heading down sharply. Furthermore, Prechter and a few other Elliot Wave analysts use that as a main basis for their own stock market wave analysis.
Anyway, JR’s main point is that Ruth Mantell must have voted for Obama since she can’t think conceptually. Consider:
The stock market started to decline sharply just after the ECB did exactly what it said would ruin the euro, and that is just like letting Lehman go down after financial support was promised, “to avoid a contagion.”
If the Gulf oil spill and it’s botched recovery efforts aren’t like the Katrina fiasco, I don’t know what is.
There are physical terrorists and there are financial ones. Rumors of precious metals manipulations, corrupt rating agencies, and global bond vigilantes are of the latter kind, and they’re active in the US. What will they do next, and when?
And the US military build up in the gulf of Hormuz isn’t like the Kuwauit invasion? Come again?
I guarantee you that “the flash crash” on May 6, 2010 will be in the record books.
It was up in the first place because we were supposed to get “change we can believe in.” ROFL!
“Terrorists didnt (sic) attack America”
Really? Who did attack us then?
Consumer sentiment is a lagging non-indicator.
They forget to mention the Federal Reserve predicted this week that this no to slow growth don’t call it a recession will continue for another 5-6 years.
That cheery outlook is from those wonderful folks who called the subprime mortgage meltdown in August of 2007 “a $50 billion problem.”
It’s going to get worse before it gets worse.
All the best,
Thrash
So Bruce C. … your analogies are cute, but I think I have some better ones:
1. Our military escapades in Afghanistan are analogous to the Soviet escapades in Afghanistan.
2. Our debt is analogous to Soviet debt during the 1980s.
3. The BP catastrophe is analogous to Chernobyl.
Guess where we’re heading?
Consumer sentiment is down a LOT because of the Congress passing FinReg.
Most people I know have woken up the fact that the banks CONTROL OUR GOVERNMENT. Fascism is when government and the economy become one.
Well, they have, and Goldman Suchs is our master now. I hope the military will wake up to whats going on when they are asked to put down American riots. If not, the military will be swept away as the tiger cannot defeat the ants. The American people will always win in America. We’ll just have to go through hell in order to get to Heaven.
In 1930, They didn’t Know it was “The Great Depression” yet. In fact according to President Hoover, “Prosperity is just around the corner.”
Great work by Dan Alpert of Westwood Capital.
http://www.businessinsider.com/clips-from-great-depression-2010-6#february-2-1930-market-recovering-faster-than-expected-1
He is correct 9/11 was an inside Job.
I’ve noticed that the little videos that accompany this website don’t last too long before being replaced by another, so if you haven’t seen “When Central Banks Rule the World” I recommend that you do while it lasts. In fact, I suggest you see/hear it…well, I don’t want to exaggerate … so say about 100 times.
It’s critically important to understand that a global-financial network is trying to subsume all national governments. The US Federal Reserve Banking system (along with other central banks) is a wolf in a sheep’s clothing. It is not subservient to the US government, and does not necessarily act in its interest. (Believe me, defending the US government is painful, but for the US to become subservient to a global financial oligarchy is even worse.) That the Congress was so stupid/corrupted to give even more power to the FED in the financial reform bill is proof enough to me that the end game has stared.
Here’s the bottom line: Whether it starts now or starts later, the ONLY way to deal with this global coup will be a massive monetary withdrawal. I’m talking about purposeful financial austerity, refusal to pay taxes, massive reduction of government at all levels, and a thorough rejection of multiculturalism.
The one ace-in-the-hole that “we” the US citizens/US government has is to DEFAULT on the bonds/assets purchased by the FED. I say let them buy more debt (US treasuries, municipal bonds, etc.) and then default. Literally. Call their bluff. Fraud doesn’t deserve our honor.
I don’t understand all this banter about 911. The unexpected attack of a city is an act of terrorism no matter “who” did it. I mean, what difference does it make? Are some of you saying that had we known that it was an “inside job” we wouldn’t have invaded Iraq/Afghanistan?
I don’t get it. If your claim is correct then the only thing those wars have accomplished is the impoverishment of the US, among other things. But that could have been accomplished in so many other ways, and much more easily too. Again, I don’t get it.
Okay here’s some good news:
Ohio AG announced that AIG has agreed to settle with 3 Ohio pension for $745 million. The suit involved allegations of accounting fraud, stock price manipulation and bid-rigging.
Oddly enough AIG continues to keep its license and no criminal charges are pending.
All the best,
Thrash
Odds & Sods
- 9/11 posts are spam. It’s best to ignore them entirely or we will get finger cramps scrolling through their drivel looking for economic related news & views. Those posting such are merely attempting to hijacker the discussion. They are at best, extremely rude.
- Joan Veon, Alex Jones, George Noory and others lose me the moment they refer to some centuries long conspiracy. Most of this bunk can be traced back to popular notions attributable to the Confederate States.
What appears as a centuries long conspiracy is nothing more than the natural evolution of the expansion of an agency, in this particular case, the central bank.
IMO, we would be wise to heed President’s Jefferson, Jackson & Kennedy and even more recently Newt Gingrich has advocated doing away with the Federal Reserve.
What happens if the Treasury defaults on the notes bought by the Fed with freshly minted fiat money? Does the Fed lose the principal that it printed? That wouldn’t make sense because It wasn’t theirs to begin with. Perhaps it loses interest payments? If so, can it print money to pay itself? So, is it possible for the U.S. gov’t to default when the Fed owns the notes? Thanks!
Duane,
I appreciate your questions are directed to JR. I just wanted to add that John Mauldin argues that the Fed didn’t print new money when it bought Treasuries and other securities. Consider:
“So, let us be clear on this subject. In 2008, when the fed purchased all manner of securities, to the tune of about $1.2 trillion, the fed was not “printing money”. Bank deposits at the fed exploded to the upside, the monetary base rose from $800 billion to $2.1 trillion, yet no money was “printed”. Deposits did not rise, loans were not made, income was not lifted, and output did not surge. The fed could further “quantative ease” and purchase another $1 trillion in securities and lift the monetary base by a similar amount yet money would still not be “printed”. ”
http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2010/07/12/recession-deflation-and-deficits.aspx
So JR while you answer Duane’s question, maybe you can ‘splain to me as well that quantitative easing is something more than an IOU issued by the American People and that we’re paying the Federal Reserve for the privilege? Apparently it is not “money.”
As Darren Pang, my fave hockey commentator says, “Holy jumpin’.”
All the best,
Thrash
Duane and Thrash,
If I may…
The ultimate irony is that the Fed generated money is manufactured, but as long as everyone believes in the fiat system it is effectively real. The FED is a bank, albeit a central bank, but a bank nonetheless. Being a central bank, however, it’s interests are not merely to “make money” for it’s share holders, but to gain power – an even more coveted “asset”. The central banks are like an organized crime syndicate in which power is gained by supplying money (the “drug”) to governments like the US Treasury by purchasing repayment agreements (e.g., Treasury bonds) and depositing the payment of those bonds in the commercial banks that issue them, becoming “excess reserves” presumably for the com. banks to lend. That is how liquidity is added to the system, assuming the banks actually lend it, as you have read about ad nauseam. So, true to Brad’s point, most liquidity is not in the form of printed money. It’s more like a book keeping entry between bank balance sheets. If there becomes an actual demand for physical currency (say people start cashing their loan checks and hauling ass) then more bills will be printed , but nothing profound or interesting happens in that process.
Anyway, if the Treasury (or any of the Agencies that sold bonds too, or the states if the FED starts buying munis, etc.) defaults on those bonds then the FED loses power, not money because – you’re right – it’s all fake. It’s like calling their bluff and ending the game. Realize, however, if that happens then the Treasury won’t be able to operate as it has, spending money it doesn’t have, etc. I’m sure there would be all kinds of other consequences too. It could literally be like stiffing “the Mafia”. Things could get very personal and uncomfortable for the bureaucrats at the top who could engineer such a thing. Stay tuned. Bizarre stuff is going happen.
JR,
Where can I find that last video of the Max Keiser report that you posted here yesterday? I listened to it once but wanted to hear the Ben Davies interview again.
Thanks.
Duane and Thrash,
Wish I had a more rigorous answer on the Fed question, but every time I start thinking about the monetary base and Fed balance sheet and all those money supply measures I just get a headache. Sometimes the simplest answer works pretty well, and in this case just assuming that the Fed and Treasury are a single organization that one way or another will keep running the “printing press” until everything falls apart gets us to the right conclusion: buy gold and hide it in a safe place!
John
Bruce,
He archives his stuff at http://maxkeiser.com and YouTube has a lot of past shows too.
John
Bruce C.,
First thank you for not expounding some weird conspiracy theory. I really do believe that the “power” is just the natural growth of the banking bureaucracy. This theory certainly follows with numerous warnings throughout history and seems far more credible.
And you’re right Bruce I had posted on this before, citing that the banks weren’t lending. But this is new info. The Fed isn’t actually printing new money. It is merely a bookkeeping entry.
I could of course pontificate eloquently how this policy meets the four pronged test for fraud. Seems pedantically obtuse given the circumstance. I prefer Daren Pang’s, “Holy jumpin’.”
I must now re-think the hyper-inflation scenario. This doesnt’ change my bullish outlook for gold. It’s all relative. But we should be prepared for the emotional angst of a manipulated paper gold crash and perhaps view such as a near last gasp or final takeover by the criminal elite.
Oh man the Chinese are going to be pissed. Now I really do understand why these situations usually require war to sort out. War consumes and destroys the excess capacity.
There must be a better way. Obviously, that’s a discussion for another day.
In the meantime, I’m hearing but so far haven’t confirmed, that come 2012 all businesses will report all transactions in excess of $600.00 on a new 1099. That’s got to make us all feel secure in our person, houses, papers, and effects…not that the reporting requirement might (1) constitute an unreasonable search absent a finding probable cause exists, (2) is necessary to regulate commerce with foreign nations, and among the several states, and with the Indian tribes.
It is time I stop indulging such quaint notions and recognize reality. Mom & Dad always wondered when I’d grow up. A shame they didn’t live to see it.
All the best,
Thrash
I think it is imperative that we require Fed to supply the American people a 1099 for every transaction in excess of $600.00. No equivocation. Can anyone write a 2500 page petition? I’m quite sure at this juncture we can get the American people to sign it without reading it. Standing on street corners with 2500 pages we can holler out – “sign the bill”. If necessary we can bribe them with promises of real money should we succeed.
Liberty Dollar Raid 2
It’s always hard to tell about guys like Bernard von Nothaus. I never know if they’re crooks, likable loons or martyrs. You don’t need a law degree to know von Nothaus scheme is a clear violation of Title 18 USC Section 486.
I first came upon this law, when at the tender age of 18, I had the bright idea of buying an island located in international waters, within the Great Lakes, declaring same independent, applying to the United Nations for recognition and building a hotel and casino. Yeah I know, kids, eh.
There was a time in Las Vegas, NV. when casino chips were commonly accepted by local merchants. The practice was ended in the 1970′s in part, (1) under threat of prosecution; and, (2) general concern regarding the economic viability of certain casinos.
von Nothaus first clue might have been, if they can’t do it in Vegas, it probably really is against the law. If the Feds have any sense of humor and they don’t, von Nothaus cellmate would be Irwin Schiff, the tax protester.
Their convoluted legal theories would be entertaining and who knows, they might actually stumble upon a correct one.
The point is, don’t try this at home kids. We need survivors, not martyrs.
All the best,
Thrash
re: http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2010/07/12/recession-deflation-and-deficits.aspx
Brad et al – I finally took the time to read the entire article you linked to on Mauldin’s site. I guess those words you quoted were from Van Hoisington’s latest quarterly report (all new to me). He contends that M0, or monetary base, is not money. Hence, what you said. But M1 and M2 are money, and M3 is money intermixed with near-money. I’m not kidding and it actually makes sense. Gold is considered, too. I hope some will read the article carefully, because I cannot but see how it can add another piece to the puzzle of where we are currently headed.
- Hey Duane
Part of what I took from the article is that we use terms such as money, near-money, fiat currency and legal tender very loosely. Frankly, I don’t think we should use the word money at all when referring to the stuff, or legal tender issued by central banks.
To the extent the word money is used to describe such only adds to the confusion and worse, research based on a false premise.
Alex Jones?
Oh c’mon JR. First Bernard von Nothaus, now Alex Jones. What is this whack job weekend at DollarCollapse?
Amazing Jonesy spoke for ten minutes without his usual rant about fluoride in the water, internment camps, vaccines as a means of population control and that all President’s since and including Ronald Reagan must become child molesters once in office.
According to Jonesy it’s all part of some vast control conspiracy.
All the best,
Thrash
Trichet Challenges Inflationism by Doug Noland July 23, 2010
I read this article, and it suddenly dawned on me that there are at least three sets of “bad news” camps, when I usually considered only two. The inflation and deflation camps, which are focused on the how the private economy fares; and the fiscal train wreck camp, which is focused on govt solvency. Doug Noland’s latest article indicates that he mainly worries the fiscal solvency issue, whereas others focus on a deflationary depression, and others focus on hyperinflation. Of course, all of these are in play. Interesting… It’s like a race – will the government default on its debt first, or will the rest of us default on ours first? Will the govt stop spending first, or will we have nothing left to spend first? When I think of it this way, it almost seems like it’s us versus them… Didn’t give this post a whole lot of thought, so be merciless!
Duane and Thrash,
Here’s an article you might like: http://theautomaticearth.blogspot.com/2010/03/march-22-2010-incredible-lightness-of-s.html
Excellent and entertaining recap of ground we have covered Bruce C. I don’t tire of it though. Thanks. Timing is one pesky issue, no?
BTW, I passed on Tim Sykes. The presentation was a cross between MLM and religious revival. Mr. Sykes might have a good thing going but he isn’t my taste. Maybe if I was hungrier.
Hey Duane, followed your link. Read Noland again. If you can see such macro trends on the basis of a daily snapshot, you are way smarter than me. Hope that isn’t too merciless
Here’s some brain food back@ya: http://fofoa.blogspot.com/2010/07/foa-on-hyperinflation.html
All the best,
Thrash