Tuesday, August 30, 2011

Consumer = broke, unhappy and pissed

  This chart from ZeroHedge shows consumer confidence has been falling throughout 2011 and has never recovered post Great Recession.

     Consumer confidence dropped to the lowest level since the depths of great recession a private research report showed Monday.

     "The Conference Board’s index slumped to 44.5, the weakest since April 2009, from a revised 59.2 reading in July," said a Bloomberg article.  This drop was the biggest one month drop in the history of the Conference Board survey.

     Consumer sentiment was weighed down by constant bickering in Washington over raising the debt ceiling, high oil prices, falling stock prices and the downgrade of US debt which caused turmoil in the financial markets.

     Consumer spending makes up 70% of the US economy so any changes in  consumers' attitude is monitored closely by economists and traders.  With consumer mood souring it may make it less likely they open their wallets to purchase that new flat screen TV or automobile. 

     Stocks immediately dropped sharply in reaction and Gold rose.  Stocks later recovered after an initial 100 point drop on the Dow Jones Industrial Average.

     Stocks ended higher on the day after minutes from the Fed's recent meeting came out showing that the Fed was looking at creative ways to boost the economy.  Stocks and Gold both shot higher on the news.  At the close the Dow finished up 20 pts after earlier being up almost 100.  A sharp selloff in the last 15 minutes of trading pared gains.  Gold closed at $1834 an ounce up almost 50 dollars on the day. 

     It was another day of strong bullish action in the markets.  The initial swoon of the markets on the consumer confidence news didn't faze the bulls as they drove the markets higher.  A few weeks back, markets would have been down 400 pts on the negative consumer confidence news.   The fact that bulls could brush off that kind of news and rally is extremely positive.

      Later in the day, the Fed minutes gave more ammo to the bulls as they are looking for any kind of stimulis that could drive asset prices higher.  A little concerning was the last 15 minutes of trading.  It was a swift drop of 60 pts on the DOW which could lead to some follow through selling tomorrow. 

     I chickened out and sold my AAPL on the consumer confidence news.  The market dropped so sharply it freaked me out and I got out of it around $388.  Still, I made a 4% profit on the trade so I'm happy.  AAPL later traded up past 391.  I am still holding on to my XLE.
     I also started a position in Gold from the proceeds.  I decided to go ahead and buy some as a hedge.  I only bought a small position and will add to it as it goes up.  If it goes down I set a 4% stop on it.  I may decide to keep it to see if it comes back because it is such a small amount.

     I like Gold because it is showing a lot of strength even in the face of rising stocks.  I think the price of Gold is an indictment of the fiscal policies of the developed world.  I don't see any change in the loose monetary policy so Gold should still be a good place to be albeit with some sharp corrections along the way.


  1. Weird how the consumer controls the very thing that they fear, and yet do nothing about it since it's collective consciousness.

  2. the dangerous thing is if the consumer loses confidence and stops spending it sends the economy into a recession which hurts the consumer even more.

  3. gold is the best thing to invest in atm

  4. Eh, I don't share your sentiments in regards to gold, I have more faith in silver.

  5. I think gas prices really takes its toll on consumers. we need to have a national energy policy