Tuesday, April 28, 2009

Nice Pop - Confidence Up?

I just saw the market pop 1% and went looking for some news (even though a 1% move is practically noise these days) . I immediately noticed a CNN story about a fish that swallowed a cell phone. With fish now eating cell phones, an entirely new source of demand appeared to be opening for the phone manufacturers. This would clearly be a boon to them and their suppliers, so the market pop seemed to make sense. Just imagine how quickly we could rebalance the global economy if we could also start feeding fish our excess cars, malls, mortgages, and economists. This theory was somewhat marginalized when I saw that the consumer confidence figures for April were just released.

It seems the cause for the pop was the Conference Board's Expectations Index which rose from 30.2 in March to 49.5 in April. We can't get into the heads of those surveyed to figure out just why they've become more optimistic (actually, less pessimistic), but it should be safe to assume that the 25%+ gain in the stock market since March 9th played a fairly significant role. The steady blather from the banks that they're in great shape, and the stream of reports from the media that the economy is bottoming were also likely influential.

Unfortunately, this indicator, like many, is of limited value. It doesn't correlate well with consumer spending, and consumers are about as accurate at predicting the path of the economy as the economists are (translation: not very). Like many economic indicators, the confidence figures had been in free fall. No one should have been expecting that rate of decline to continue. We would all be feeding ourselves to the fishes in another 6 months. A bounce is certainly not a bad thing, but buying stocks because lemmings with no money feel less bad AFTER the market has had a nice rally is probably not a great idea.

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