The stock market is struggling a bit today (down 2.5% as of this writing) following the release of the Consumer Confidence Indicator for June. This figure fell over ten points month over month to 52.9 vs. the May figure of 62.7. So consumers are much less confident than they were a month ago. For anyone who reads the newspaper or listens to television, the reasons for this decline in sentiment would be obvious – economic problems in Europe, too much debt everywhere, high unemployment, falling retail sales, a stalled housing recovery, threats of inflation (or deflation, according to some), the perception that government actions are not helping, soaring budget deficits, the oil leak in the Gulf of Mexico, Courtney Love’s latest horrific concert in DC, and so on.
That said, the glass is never empty just as it is rarely completely full. Usually, it’s somewhere in the middle (the reality), but how we perceive it (sentiment) can vary wildly and change quickly. So, if the average person out there (as measured by the Consumer Confidence Indicator) is indeed looking at the glass half empty right now, I must ask, “Is there any good news out there?”
As I often say, the economy is like a big tanker, it does not turn quickly. For the economy to suddenly stop its recovery now would be highly unusual. A modest pause in growth, however, is not that strange. It really boggles my mind when we see a little weakness in the numbers and highly vocal economists and commentators immediately conclude that a “double dip” is coming or “the recovery never happened.” What’s the upside in such wide-spread negativism? Who wants us to think that things are worse than they really are?
Last week, I outlined four very big positive factors for the economy. Believe it or not, they have not changed in the last seven days.
Earlier this month Dennis Kneale (a CNBC editor) penned an excellent piece that got picked up by Yahoo Finance. It’s entitled, “Are We Psyching Ourselves Out of a Recovery.” In it, he covers the kind of themes which I often address – the apparent disconnect between economic reality and sentiment. He noted that U.S. households added $1 trillion to net wealth in the first quarter of this year. He also mentioned that non-financial companies have generated $380 billion in cash in the past year, the biggest rise in six decades.
He also reported a few details of a recent CEO conference where about 80% of the attendees were confident that a recovery was underway. One person noted that “travel bookings are booming.” One Harvard University economist noted that the way the employment statistics are reported may distort the reality underneath the numbers. He noted that of the 2.7 million jobs created so far this year (sound like a “half full” number, doesn’t it?), 2.6 million of them were private sector ones.
Another CEO put the long-term prospects for the globe into a clear context. “…three billion extra people will populate the earth by 2050, and most will live in cities, so infrastructure investment will be high” India itself will be spending $1 trillion on buildings, roads and housing in the next five years. Even Mark Fields, who runs the Americas business for Ford was pretty optimistic, “Sure, economic data may be contradictory and volatility may be rising… But why fret? The numbers are just inputs for us. Our job, as a management team, is to have a point of view and manage those risks.”
Maybe we all should think more like CEOs when it comes to our investment portfolios. Perhaps less focus on the short-term volatility and more on the long-term opportunities would be a good thing.