Earlier we thought we were joking when we noted that in America the only digestable news is good news (or at least, that is what it becomes after a few quick spin cycles.) To our surprise it took about 10 minutes to confirm that the joke was really fact. Remember that horrendous consumer confidence number from about an hour ago? The same one that all those who prevsiouly praised, and said the confidence board could do no wrong, is now being derided as completely irrelevant, manipulated, etc, and, if you reallllly think about it, it is just a big, flashing green light to buy, buy, buy. Indeed - here is Collins Stewart to provide the requisite spin. As for the reality, the one that ABC Consumer Comfort has been demonstrating for months now, the truth is that both UMich and Confidence Board are now merely 3rd if not 4th derivatives of the machine controlled, micro-volume equity market. If the market has a down day, consumer confidence goes down, and vice versa. We wonder just how indicative of the broader "consumer" confidence are the daily gyrations in the SPY bid and offer, and how anyone, aside from various ETF desks and a few Atari 2600 consoles, has any reason to be confident based on what is happening in the market intraday.
As you all know, we are very constructive about the equity market. Today, the Conference Board released their gauge of Consumer Confidence, which came in below expectations (Exhibit 1) and has led to a quick drop in the equity market. A few thoughts:
- That reading has no correlation to the equity market or economy other than at extremes as a contrary signal. As you can see it recently hit a HISTORIC extreme. Even the moderate recessions saw this economic measure headfake after the initial recovery. This environment should be no different.
- Despite the weaker reading it is still trending higher off the recent historic low.
- We should thank the market gods for the weaker reading because it will give the Fed an excuse to do what they already said they would – keep rates abnormally low for an extended period, thus keeping the Yield Curve historically steep.
- We would use any weakness caused by this econ release to increase exposure to the equity market with a particular focus in the Info Tech, Health Care, Financial, and to a bit lesser degree Consumer Discretionary and Energy sectors.
Rinse the idiots, Spin, Repeat.