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Ten Days After Epic UMich Consumer Confidence Miss, A Second Confidence Index Surges

Tyler Durden's picture




 

Confidence is soaring (or sliding) depending on what survey you choose to believe. The UMich confidence's collapse (the biggest miss in 8 years) has been matched by more 'baffle 'em with bullshit' as the Conference Board beats expectations by the most in 5 months and pushes back towards 2013 highs (near the highest in over 5 years). Both the Present situation and Expectations rose notably - despite 1.4 million people losing their benefits, a lackluster holiday season for retailers, and stagnant incomes - but the Present Situation index rose to the highest since April 2008.

The two confidence indices seem relatively well correlated in their beats and misses until the last 3 months...

 

Confidence is back...

 

Of course, what is critical is the continuation of the confidence bubble... because earnings won't get the market to Nirvana so multiple expansion better keep rising...

As a gentle reminder, as we have noted previously [17] - 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...

 

 

[18]

 

and the cycle appears to be shifting...

Via Citi,

Is consumer confidence set to turn?

[19]

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...

[20]

 

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.

[21]

 

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.

 

For now the mid-year highs are holding as confidence cannot escape its secular downturn.

 

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Tue, 01/28/2014 - 11:21 | 4375099 carbonmutant
carbonmutant's picture

It all depends on who you interview....

Tue, 01/28/2014 - 11:26 | 4375129 ziggy59
ziggy59's picture

Zackly...they asked the banksters...looking good!

Tue, 01/28/2014 - 11:29 | 4375143 dontgoforit
dontgoforit's picture

I confident we're being conned.

Tue, 01/28/2014 - 11:38 | 4375188 101 years and c...
101 years and counting's picture

"near highest in 5 years".  yay, we're almost back to the when economy crumbled in Jan, 2009. 

Tue, 01/28/2014 - 11:40 | 4375169 Cult_of_Reason
Cult_of_Reason's picture

The Conference Board (1,200 corporation as members) has an insensitive to bullshit about consumer confidence, similar as NAR has an intensive to bullshit about housing.

The Conference Board cheerleading headline tells it all: With Expectations Rising, Economy May Gain Momentum in Months Ahead

Tue, 01/28/2014 - 12:06 | 4375322 whatsinaname
whatsinaname's picture

Must be the Nat Gas prices - leaves everyone feeling heady and bubbly.

Tue, 01/28/2014 - 11:20 | 4375104 LoneStarHog
LoneStarHog's picture

Dressing for State of the Union, this evening...

Tue, 01/28/2014 - 11:26 | 4375133 unrulian
unrulian's picture

Guy is that you?

Tue, 01/28/2014 - 11:33 | 4375167 onewayticket2
onewayticket2's picture

I was against the survey before i was for it.

- john kerry

Tue, 01/28/2014 - 11:36 | 4375183 Levadiakos
Levadiakos's picture

At least Jamie's bonus is safe.

Tue, 01/28/2014 - 11:24 | 4375121 Yancey Ward
Yancey Ward's picture

Well, it was cold in December and January, and it is a well known fact that confidence indices show divergence from one another when it is cold.  Also, when they show divergence, it is bullish!!!

Tue, 01/28/2014 - 11:27 | 4375134 ihedgemyhedges
ihedgemyhedges's picture

Present Situation: "Hey the snow melted and the sun is shining."

Translated: Put him down as highly confident.

Tue, 01/28/2014 - 11:28 | 4375140 What is The Hedge
What is The Hedge's picture

And it's State of The Union day, what a coincidence!

Tue, 01/28/2014 - 11:28 | 4375148 homiegot
homiegot's picture

This is getting hilarious.

Tue, 01/28/2014 - 11:31 | 4375151 Smegley Wanxalot
Smegley Wanxalot's picture

so Obama needed a positive sqauwking point for his bullshit state of the union blather tonite, and now ... he has one.  Forget that it's BS ... look at the pretty butterflies!

Tue, 01/28/2014 - 11:30 | 4375156 dobermangang
dobermangang's picture

Not many want to pay for overpriced Super Bowl tickets.

http://nypost.com/2014/01/27/ticket-prices-plummet-weekend-before-super-...

Tue, 01/28/2014 - 11:31 | 4375160 youngman
youngman's picture

Just wait until they get their December and January Heating bills....that will take the smile off their faces....let alone the ones that have to fix a frozen pipe....or have dead farm animals from the cold....

Tue, 01/28/2014 - 11:34 | 4375164 Spungo
Spungo's picture

I'm confident I'll make a killing on gold miners this year.

Tue, 01/28/2014 - 11:37 | 4375191 ziggy59
ziggy59's picture

Was that seasonally adjusted confidence?

Tue, 01/28/2014 - 11:39 | 4375199 q99x2
q99x2's picture

These graphs are all fine and dandy  but can't we get some photos of the dead banker that jumped off of the building.

Tue, 01/28/2014 - 11:49 | 4375241 yogibear
yogibear's picture

Ask NAR if it's a good time to buy a house and they will always respond with "Now is the best time to buy a house."

Ask Conference Board (1,200 corporation as members) if it's a good time to consume. They'll always say it's a good time to spend.

Look at what their doing. Holding onto cash. Do what I say, mot what I do.

What a sham.

Tue, 01/28/2014 - 12:01 | 4375293 Rising Sun
Rising Sun's picture

ah the sweet smell of bullshit during the day

 

smells like there's a nazi in the white house that needs to be "kennedy'd"

Tue, 01/28/2014 - 16:24 | 4376622 prmths2
prmths2's picture

If consumer confidence reflects the sentiments of the FSA then an increase is a bad omen.

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