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Consumer Confidence Misses Expectations; Slumps To Lowest Since January

Tyler Durden's picture





 

With Gallup indicating the biggest 3-week decline in economic confidence since Lehman, it is hardly a surprise that UMich consumer confidence slumped to its lowest since January having fallen 3 months in a row. This is the 2nd monthly miss in a row - and biggest 3-month drop in 25 months -  and appears to confirm the cyclical turn we have been discussing for a few months. And remember, the exuberance of multiple expansion relies on the ever-rising confidence of the people to lift it back to nebulous heights.

 

 

As we have noted previously - this move in confidence is key...

But, it's all about confidence... investors will not be willing to pay increasing multiples unless they are confident that the future streams of earnings are sustainable and forecastable... And simply put, the current levels of Consumer Sentiment need to almost double for the US equity market tp approach historical multiple valuation levels...

 

 

 

and the cycle appears to be shifting...

Via Citi,

Is consumer confidence set to turn?

Consumer Confidence is once again following a dynamic where we see it move higher for 4 years and 4 months before beginning to collapse

  • Moves higher from 1996-2000 with a smaller dip halfway through in October 1998
  • Moves higher from 2003-2007 with a smaller dip hallway through in October 2005
  • Moves higher and so far tops out in June 2013. Also sees a small dip halfway through in October 2011.

 

Higher yields do not help confidence...

 

A sharp rise in mortgage rates has a negative feedback loop to consumer confidence. For those families and individuals that were now looking/able to enter the housing market, the recent spike in rates acts as a headwind.

 

In addition to the economic backdrop, there is plenty of tail risk as we head into the end of the year. Oil prices have been rising since the summer began (and in reality since the Summer of 2012), partially due to geopolitical risks which are very much “top of mind.” A bigger spike due to a supply shock would choke the economic recovery.(In our view)

In the US, the appointment of a new Fed Chairman and the upcoming budget/debt ceiling debates are likely to bring added volatility. Tapering itself can also induce concern as the “Bernanke put” is being removed from markets.

In Europe, many of the structural problems related to the single currency union have not actually been addressed and the peripheral countries could still create turmoil going forward (see Fixed Income section focusing on Italy in particular for more on this). There has also been little concern with both the German elections and the German Court decision on the constitutionality of the OMT program. A surprise in either of these could be cause for concern.

Emerging Markets are still not out of the woods yet as growth has been weak relative to expectations and countries with current account deficits are beginning to feel pressure in their FX and Bond markets. This is an issue we believe is only starting to develop which we will continue to expand on at later dates.(We have also looked at this in our EM FX section this week)

Overall, the weak economic backdrop, poor housing recovery and potential for tail risk events over the next few months suggest that we have topped out in Consumer Confidence, a warning sign for equity markets.

 

The relationship between Consumer Confidence is clear, and IF June did mark the high and Confidence continues to decline, then we would expect to see that translate to weakness in the equity markets. The removal of the “Bernanke put” only adds to this concern.

A major turn has taken place in equity markets on average four months after Consumer Confidence turns, which would point to a decline beginning around September-October. As we have previously expressed, we remain of the bias that a correction in equity markets on the order of 20%+ is likely this year/ into 2014 and the current dynamics support such a move.

Should we see a decline of that magnitude, it is almost certain that yields would move lower in a rush to safe assets.

 


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Fri, 10/11/2013 - 10:09 | Link to Comment alien-IQ
alien-IQ's picture

I guess that explains the spike in /ES?....

Fri, 10/11/2013 - 10:31 | Link to Comment SheepDog-One
SheepDog-One's picture

'Confidence' used to be the label of a man who would trick people out of their money with elaborate scams.

Fri, 10/11/2013 - 10:08 | Link to Comment Racer
Racer's picture

Who cares about consumers?

As long as the Dow is over 15K that's all that matters to the eLeeches

Fri, 10/11/2013 - 10:08 | Link to Comment 10mm
10mm's picture

Confidence,right.www.dailyjobcuts.com 

Fri, 10/11/2013 - 10:08 | Link to Comment AynRandFan
AynRandFan's picture

Don't need all those charts to understand consumer/economic confidence.  Just watch the U.S. Debt Clock.  If it's spinning, we are all smiling.

Fri, 10/11/2013 - 10:11 | Link to Comment EscapeKey
EscapeKey's picture

... well, yes, but now there's more scope for improvement!

It's all good, I swear.

Fri, 10/11/2013 - 10:16 | Link to Comment Spastica Rex
Spastica Rex's picture

CON CON CON

 

edit: The systemic grift is so fucking brazen that they print statistics for the mark on how well the con is working!

Fri, 10/11/2013 - 11:00 | Link to Comment kralizec
kralizec's picture

AmeriCon, fuck yeah!

Fri, 10/11/2013 - 10:17 | Link to Comment hangemhigh77
hangemhigh77's picture

They should change it to Sheeple Confidence Indicator.  At least they can tell something that's truthful

Fri, 10/11/2013 - 11:02 | Link to Comment kralizec
kralizec's picture

Dear Citizen,

They'll be none of this truth in bullshit bullshit.

-Fedcoat Internal Security

Fri, 10/11/2013 - 10:26 | Link to Comment overmedicatedun...
overmedicatedundersexed's picture

those of us on the sidelines remember: cash in the bank is cash you may never see again. yellen is foolish enough to bring on the death of FRN buying power..why it has any right now is how obsured our world of elite control truly is.

Fri, 10/11/2013 - 10:28 | Link to Comment Ness.
Ness.'s picture

Take a look at the changes from just July to Oct.  Not good.

 

Cons. Sent.        85.1...75.2

Current Cond.     98.6...92.8

Expectations...    76.5...63.9

Finances/current..106...101

Fin. expected....   113...108

Econ outlook 12mth  104...71

 

 


Fri, 10/11/2013 - 12:49 | Link to Comment Nothing but the...
Nothing but the truth.'s picture

That data is all mighty bullish - DOW 20,000 look out !

Fri, 10/11/2013 - 10:28 | Link to Comment SheepDog-One
SheepDog-One's picture

WOW! Well this must be why the hockey helmeted equity kids are piling onto the short yellow bus for another ride up today!

YAY! :D

Fri, 10/11/2013 - 10:51 | Link to Comment yogibear
yogibear's picture

Watch for Old Yellen to double QE. The party goes on until the Fed crashes the US dollar.

Fri, 10/11/2013 - 11:14 | Link to Comment dizzyfingers
dizzyfingers's picture

Why does Gallup not poll the people regarding their level of trust in govenment, trust in the federal reserve system, trust in wall street, trust in the us economy, and trust in life in this country?

Even if tptb didn't care about the results, the results nevertheless ought to convince anyone who is undecided whether there's really a widely-perceived problem, and generally reinforce the notion that just about everything is not okay in USSofA, and that that is the majority opinion, despite all the spinning.

Why do we not have a option to vote "NO CONFIDENCE IN ANY CANDIDATE"?

Fri, 10/11/2013 - 12:27 | Link to Comment TrumpXVI
TrumpXVI's picture

Thirteen year long bear market in confidence.

BTW, can anyone help me out, what's the ticker symbol?...."CON"?

Fri, 10/11/2013 - 13:52 | Link to Comment LooseLee
LooseLee's picture

"And remember, the exuberance of multiple expansion relies on the ever-rising confidence of the people to lift it back to nebulous heights."

Yep. Confidence that you can sell what you bought to someone else for a higher price---multiple expansion is the practice of 'the greater fool theory' in action. Equity Bulltards everywhere are not even cognizant of this psychological phenomenon within them as they attribute a greater and more emotional meaning to 'multiple expansion'. Only fools (and Bulltards) practice the facade and then get eaten by it later and wonder what happened. They repeat this behavior over and over spanning a career of 'investing' and wonder why they have been 'running in place'. Multiple expansion in the face of economic contraction. How inviting....

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