Tuesday, November 3, 2009

What's Wrong With Consumer Confidence?

This is an interesting video taken from CNBC's "Squawk On The Street".

The show's host, Mark Haines, is incredulous that last Tuesday's consumer confidence number came in lower than expected. Haines mutters: "What the heck is that all about?" As Haines goes onto explain, housing is higher in most major markets and corporate profits are better. The only thing missing was the next statement out of his mouth, and I will fill in the blanks: "What do people want?"

It just goes to show how divorced Wall Street is from Main Street.

The show's talking heads or those people in the boxes suggest that the real angst Americans have is rising gas prices at the pump, increasing health care costs, and an uncertain labor market. This is all true, but I don't think that it is the real source of America's angst.

The real source of America's angst is a sense that something is terribly wrong. What that something is isn't tangible -like higher gas prices - but it is palpable. Maybe it is the lack of leadership in Washington or the inability of that leadership to do anything but put our problems off for another day.

There is no collective purpose to the actions coming out of Washington. There is no common cause that Americans can rally around. Bailouts and government programs, like "cash for clunkers", have perpetuated the same old thing. The bailouts have favored the connected or those who where irresponsible in the first place. Is this the American way?

This is not the change that Americans wanted. They voted for it, but this is not the change that Americans wanted.

So what kind of change did Americans want?

For this we need to go back to September, 2001 and the War on Terror. With the attack on America, President Bush was handed a golden opportunity to galvanize Americans in a common cause, but instead all he asked of his fellow countrymen was to go to the malls and continue shopping. The soldier in combat made the sacrifice, but this is what they do. Their sacrifice was unconditional, and this was understood and accepted by all. But where was the sacrifice asked of the ordinary American here at home? At the very least, shouldn't we have been asked to cut back on our consumption of large cars and oil to decrease our reliance on those very same foreigners who were at war with America? I am sure my fellow citizens would have been willing to act for the greater good, but they were never asked. This was President Bush's biggest failing.

Now we come to President Obama. His crisis isn't the War on Terror, but a generational economic crisis. President Obama did come to the electorate and say "we need to change the way we do business" referring to the grid lock and bipartisanship in Washington. I think the President believed this. From an idealogical perspective, Republicans and Democrats need to work together to solve the problems this country faces.

Despite the political rhetoric, President Obama did not understand the kind of change Americans seek. It isn't so much what he has done (i.e., wasted a lot of money) but what he has failed to do (i.e, galvanize the country in a common cause) that is so discouraging. Even if the other guy (Senator McCain) was elected, he probably would have done the same thing - thrown good money after bad - as this was what was being recommended by the economic leaders of this country. Oh, these were the same economic leaders who missed the crisis in the first place.

But like his predecessor, President Obama is missing what kind of change Americans really want and why there continues to be so much dissatisfaction. Americans are willing and ready to make that sacrifice to improve their nation and the future of this nation for their children - provided that burden is shared by all. The only problem is that no one has asked them to make that sacrifice for a common cause, and the window of opportunity for the Obama administration to come to the American people and unite them toward a common goal has closed or is closing quickly.

As measures to resuscitate the economy begin to peter out, the fragile underpinnings of the economy will begin to be exposed yet once again. The likelihood of throwing more money after the problem - in front of a mid term election - is becoming increasingly diminished. With no real economic catalyst to sustainable growth and with very little fixed after this crisis, one really needs to ask what does the Obama economic team do next?

One thing is for sure: the time to ask the American people to unite in a common goal passed long ago when the President first took office. This was the one option that has been squandered, and this is why Americans remain so dissatisfied.


dacian said...

I'm almost certain (even if I believe Obama is a very fine politician and he might realise what America needs) they are planning another trillion in stimulus. This will be a real disaster in the LT. It's might feeling that Obama is too weak or a secondary person there...

Btw, nice post. I do agree with you.

dacian said...

Sorry for my bad english

"It's my feeling that Obama..."

Dave Narby said...

One big problem is is that government 'eats it's own dog food', which is that it believes the numbers it puts out are only 'slightly' massaged.

A key one is unemployment. Unemployment is supposedly 9.8%. Actual unemployment is bumping up against 20%. That's one in five people out of work, double the number the government thinks are out of work.

Kinda hard for a consumer to be confident when everybody knows somebody who's having a hard time making ends meet because there's no work for them!

The problem with CNBS is that they (along with the government and the financial sector), are confusing the stock market with the economy.

They think the tail wags the dog.

Guy M. Lerner said...

Dave N.

I understand that folks are hurting; I see this everyday in my "day" job; I understand it is hard to be confident when there are no jobs. My point of the article really was to say and I hope it was clear: the time has passed for the President to rally the people; the time to suck it up was 12 months ago and let the recession take hold; 12 months later all this money was spent and we have nothing to show for it except a statistical recovery and hope that the wheels don't come off the system again.

Johnny G. said...

Good article. I agree on all points.

The VietNam war and Watergate were turning points in which the government lost the trust and respect of many Americans.

Ever since then, it seems, all the government has done is pander to public opinion and "try to make things better." It's as if the elected leaders are afraid to ask for shared sacrifice, for fear of being thrown out of office.

I have little doubt that there will be a second stimulus, and a third, and a fourth...

Mao said...

Hi, I'm a reader from Singapore;
I find the emotional force behind this post interesting, given your posts have generally been empirical in nature. Along the same line is this excellent bit of citizen journalism on Naked Cap - http://www.nakedcapitalism.com/2009/11/debt-stress-in-middle-class-america-revisited.html

I agree with you (and Buffett) that there is a lot of latent strength in the American people and values that is somehow not being tapped. I wonder how it will break out. Will it really be a social revolution -- as the rhetoric on many blogposts seem to be tending toward?

Separately, I just want to say that I really appreciate your analysis and consider it extremely 'value add', more so than a lot of professional sell-side research.

Anonymous said...

I can't stand CNBC anymore. Between that blathering idiot who whines and cries anytime someone disagrees with him (Steve Liesman) to his learning disabled step brother (Dennis Kneale) and Beaker lookalike.

Kneale won a Pulitzer once, which truly embodies the phrase "Past performance is not indicative of future results" considering how much noise he adds to the signal.

Try Bloomberg instead. You'll be amazed. Instead of stopping your work 10 times a day to ask yourself,"What did those retards just say?!" You'll actually get some useful info.

E-Jay Ng said...

I don't agree with you. The thing that is wrong is that the public is asked to make sacrifices in terms of accepting high unemployment and being saddled with trillion dollar deficits for years to come, whilst the CEOs who created this mess in the 1st place are rewarded with multi-million dollar bonuses using tax payer money.

Here's the situation:

(a) people are afraid for their jobs

(b) credit is still tight, foreclosures running high, uncertainty still reigns in Main Street

(c) the issue of too large to fail banks have not been resolved

(d) people face prospect of increased taxers both near and long term

In short, people feel betrayed.

Anonymous said...

Hello Guy
I don’t think that the source of this angst really matters only whether or not it is long lasting like the angst resulting from the 1929 depression.
There is always a myriad of triggers and solutions that can be reviewed,implemented and argued over. It is just a matter of time for the crowd to heal from this crisis.
America is resilient and has faced many a obstacles before and made our way past them. So it is just a matter how much time it takes to put this behind us now.

Anonymous said...

We've been here before, although government is more polarized and disconnected now than it was then IMO. I'm reminded of Jimmy Carter's speech in 1979: He spoke of a "crisis of confidence. It is a crisis that strikes at the very heart and soul and spirit of our national will. We can see this crisis in the growing doubt about the meaning of our own lives and in the loss of a unity of purpose for our nation. The erosion of our confidence in the future is threatening to destroy the social and the political fabric of America".

We were in a secular bear market then, as we are now. Secular bears have a way of wearing the majority of the populace down.