Wikinvest Wire

Consumer sentiment plunges ... again

Friday, April 11, 2008

Reuters reports that consumer sentiment has plunged to a new 26-year low. Let's see... That would be 1982... Wasn't that the beginning of the last bull market in stocks? It must be time to buy stocks again! Quick, someone call CNBC!
The Reuters/University of Michigan consumer sentiment survey fell from 69.5 in March to 63.2 in April, well below analysts' expectations near 70.

The April result is the lowest since March 1982's level of 62.0, when the "stagflationary" period of low growth and high inflation was still fresh in the memory of many Americans.

"There have only been a dozen other surveys that have recorded a lower level of consumer sentiment in the more than 50-year history of the survey," The Reuters/University of Michigan Surveys of Consumers said in a statement.

"Persistently high food and fuel prices as well as rising unemployment have caused consumers to view their future financial prospect more negatively (than) any other time since 1980."

The report showed its reading on one-year inflation expectations jumped to 4.8 percent -- the highest since a similar reading in October 1990 -- from 4.3 percent in March.

Five-year inflation expectations rose to 3.1 percent -- the highest since December 2007 -- from 2.9 percent in March.
Those late-2005 hurricane related plunges in confidence have really been smoked now. They had held up for quite some time - all the way up to February 2008.

As for "inflation expectations", more than anything else, these numbers track the price of gasoline. What we need is a summer-2006 style energy sell-off to knock oil prices back toward $50 and gasoline back toward $2.

It's too bad that Goldman Sachs sold their commodity index to Standard & Poors a while back or they might be able to help by causing $6 billion worth of gasoline futures to be dumped onto the NYMEX (see Friends in High Places).

Oh well, they'll have to think of something else.

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domus said...

off topic: Tim, just discovered that the issue for the Elements commodities ETN (RJI,RJA,RJN,RJZ) is a bank fully owned by the Swedish state. Very low risk of default, even for an ETN. They look like safe and promising vehicles to get in the game. Even though the DBA is more liquid, it seems that RJA is more differentiated and follows the original Roger's index. I really wonder why DBA outperformed RJA recently. Any ideas?

Tim said...

DBA is much narrower than RJA - here are the breakdowns with YTD prices where I could get to them easily:

25% Corn +31%
25% Wheat +12%
25% Soybeans +5%
25% Sugar +7%

20.1% Wheat +12%
13.6% Corn +31%
11.6% Cotton +20%
8.6% Soybeans +5%
5.7% Bean Oil
5.7% Live Cattle -7%
5.7% Sugar +7%
5.7% Coffee -3%
2.9% Lumber
2.9% Lean Hogs -20%
2.9% Cocoa +13%
2.9% Rubber
2.2% Bean Meal
1.9% Canola
1.9% Orange Juice -23%
1.4% Oats
1.4% Rice
1.4% Azuki Beans
0.8% Barley
0.7% Wool

As of last Friday, DBA was up 16 percent year-to-date and the average of the commodities it tracks was up 14 percent, which is more than you could ever ask for in a commodity ETF.

It looks like RJA was up only about six percent over that same time. The prices above (accounting for about 80 percent of the overall index) work out to be a gain of 8 percent, so it's possible that bean oil, lumber, etc. have declined in value or that contango is eating up the gains.

domus said...

Thanks, that helps a lot. you are a star.
I think it's not contango: the index is also less volatile on the way down. It must be a composition difference: animal products are not doing great (yet...).

domus said...

...and lumber is in free fall, that must be bad as well.

bradinsb said...

Dont worry the feds will revise this at a later date and of course they will revise it to look better

Anonymous said...

Honest question to the blogger: was your comment "it must be time to buy stocks again" sardonic?


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