| Consumer Confidence near 16-year Low in May -- 5/27/2008 |
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Extremely high oil via high gasoline prices and a weakening job market sent the Consumer Confidence Index to it's lowest level in 16 years in May. The index reading of 57.2 (60 was expected) was the lowest since 1992 when we were coming out of a recession. Consumer readings are analyzed very closely by economists and investors because the consumer makes up two-thirds of the US economy. So, where the consumer goes, so does our economy. It follows that corporate profits and hence stock prices are intimately tied to the consumer. As companies try to preserve profits, the job market gets worse and then consumer confidence gets worse and the cycle continues until the rubberband snaps back. We think we have a bit more to go (down), especially if oil stays up over 105 for very long. What does Warren Buffett think?
The Oracle of Omaha is taking his reading directly from the consumer just like we are. Look, this type of market is not rocket science. Buffett thinks the recession will be longer and deeper than a lot of people think. This is not end of the world stuff. These are natural cycles in the economy. There are good times and then you have bad times. When will it end? Hard to say, but end of this year there will be a real opportunity for things to get better as we think high oil will cause the consumer to hibernate this summer. That leaves 3rd and 4th quarters for companies to take real pain. What are we doing to prepare? We are preparing our portfolio right now. Are you? Get The Limit Order for $6.65/month with a 3 month membership. The Limit Order stock picks continue to outperform the market, Register for free and check it out. |
