Consumer sentiment measures the DOW not the economy - Eric Janszen

[EJ]

Consumer sentiment measures the DOW not the economy

Don’t think the government hasn’t noticed

The Survey Research Center of the University of Michigan creates the consumer sentiment index through surveys of households. The consumer sentiment index is intended to measure expectations of consumers of the future of the economy. The idea is that depending on sentiment, positive or negative, consumers are more prone or not to run out and buy more goods and services.

We are told that the survey more than anything tests consumers’ view of future job prospects and thus access to income to spend. If that were true, you’d expect to see a strong correlation between consumer sentiment and unemployment. But you don’t.

What we found years ago (See DOW Dissonance) is that in fact consumer sentiment, to the extent that it correlates to anything, usually tracks the stock market, specifically the DJIA.

Except for a brief period in 2005 and 2006, consumer sentiment and the DJIA strongly correlate. Rising unemployment starting in early 2007 overwhelmed the DJIA as the key consumer sentiment driver; consumer sentiment peaked in early 2007 before the DJIA peaked late in the year. The DJIA and consumer sentiment declined together during the recession so far, since late 2007, until recently when the DJIA and consumer sentiment re-connected. Consumer sentiment has tracked the Debt Deflation Re-inflation rally ala Nikkei year three; the Bank of Japan and Japanese politicians were slower off the monetary and fiscal stimulus block than the Fed and U.S. Congress.

The DJIA index is used by the FIRE Economy financial media to sell the current state of the economy. The correlation of consumer sentiment to the DJIA testifies to success at cultivating the symbolic value of an index. The DJIA has virtually no economic significance compared to the broad stock indexes such as the S&P index and the NASDAQ that have many times the capitalization of the DOW. The NASDAQ tracks the crown jewels of the technology-driven U.S. economy, the technology companies that boost productivity, but no one talks about the NASDAQ much these days.

Who wants to talk about a market that remains 80% below its peak nine years later? The NASDAQ is America's Nikkei.

Eventually, if the U.S. pursies fiscal stimulus without restructuring (see Deflation fare thee well, we hardly knew ye – Part I: In search of real returns in an unreal world) the DOW will also be America's Nikkei.

Real DOW Update: Still looking for a bottom?

The DOW matters

Judicial Watch forced the release of Bank Bailout Documents, including this tidbit located among them, discovered by The Cunning Realist.

No plunge protection smoking gun but clear enough evidence that the Treasury Department knows that the best way to take the temperature of American public sentiment is to use the DJIA: note that the Treasury official is not quoting S&P futures but DOW futures.

A smart public official with a negative message to deliver, such as pointing out the failure of a political opponent to vote for your spending bill designed to “create jobs”, gets it out when the DOW is down when it will receive a more accepting audience, and makes sure the DOW is up before announcing that the economy is recovering. Today, for example, will not be such a good day for that.

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[Chomsky]

What a great piece. Thanks.

[JKD]

The DOW matters

Judicial Watch forced the release of Bank Bailout Documents, including this tidbit located among them, discovered by The Cunning Realist.

No plunge protection smoking gun but clear enough evidence that the Treasury Department knows that the best way to take the temperature of American public sentiment is to use the DJIA: note that the Treasury official is not quoting S&P futures but DOW futures.

I know you guys are very thorough about crediting your sources, and nothing against the fine folks over at The Cunning Realist, but Zero Hedge had that e-mail posted over a week ago...

http://zerohedge.blogspot.com/2009/0...-geithner.html

John

[icm63]

Why is the USA Govt into home baking, does Martha Stewart work for them ??

DOW Fudge
CPI Fudge
10yr Treasury Fudge
Employment Fudge
GDP Fudge
etc

That's a lot of different fudges the govt makes, and all available for sale to the public to raise funds to pay for a lifestyle they cant afford. ;)

[bart]

The U. Mich confidence index also does a pretty fair job of correlating with unemployment plus corrected CPI, aka the Pain & Misery Index.

[metalman]

I know you guys are very thorough about crediting your sources, and nothing against the fine folks over at The Cunning Realist, but Zero Hedge had that e-mail posted over a week ago...

http://zerohedge.blogspot.com/2009/0...-geithner.html

John

It is good to see that the Treasury's Chief Of Staff is mostly transfixed by just how the market reacts to any gust of the wind.

'transfixed on gust of wind' vs dow as gov't-man's public sentiment indicator... not exactly the same interpretation.

[babbittd]

The DJIA index is used by the FIRE Economy financial media to sell the current state of the economy.

an extremely important point.

[metalman]

The U. Mich confidence index also does a pretty fair job of correlating with unemployment plus corrected CPI, aka the Pain & Misery Index.

how much of your pain index is unemployment?

[bart]

how much of your pain index is unemployment?

Half - it's the standard formula of just adding CPI to unemployment.


By the way, gasoline correlates reasonably well too... which could possibly maybe perhaps partly help to explain why it has gone up less than oil lately.

[babbittd]

Half - it's the standard formula of just adding CPI to unemployment.


By the way, gasoline correlates reasonably well too... which could possibly maybe perhaps partly help to explain why it has gone up less than oil lately.

Great f'n point Bart. And we talked about this many times last summer.

Think back - how many of your conversations with regular folks during the spring and summer were about the price of gas at the pump on a daily basis? I was bartending at the time, and it was definitely the main topic of conversation for about 2 months running.

So the FIRE companies and bullhorn operators might want the DJIA to be the end-all figure of focus for Joe Six Packs, but in an environment of rising gasoline prices, that number quickly takes over in our minds.

[metalman]

Half - it's the standard formula of just adding CPI to unemployment.


By the way, gasoline correlates reasonably well too... which could possibly maybe perhaps partly help to explain why it has gone up less than oil lately.

thx! higher gas + job loss = fewer votes. what's simpler than that for pols to understand?

[medved]

Why is the USA Govt into home baking, does Martha Stewart work for them ??

DOW Fudge
CPI Fudge
10yr Treasury Fudge
Employment Fudge
GDP Fudge
etc

That's a lot of different fudges the govt makes, and all available for sale to the public to raise funds to pay for a lifestyle they cant afford. ;)

Another anti-government fanatic! Don't blame our diligent and honest government, we all know the real reason behind the crisis. FREE MARKETS DO NOT WORK! Didn't you get the message? ;) :confused:

[icm63]

.."FREE MARKETS DO NOT WORK! "...

There is a difference between freedom definitions...

1) Freedom in TombStone before Wyatt got there (outlaws had freedom todo what they wanted).[WallStreet 2000 to 2009+]

2) Freedom in TombStone after Wyatt cleaned up..(citzens had the freedom to prosper)

Point: Free markets with common sense laws.

[flintlock]

.."FREE MARKETS DO NOT WORK! "...

There is a difference between freedom definitions...

1) Freedom in TombStone before Wyatt got there (outlaws had freedom todo what they wanted).[WallStreet 2000 to 2009+]

2) Freedom in TombStone after Wyatt cleaned up..(citzens had the freedom to prosper)

Point: Free markets with common sense laws.

x2. And good tongue in cheek humor Medved.

But to all those serious "down with capitalism" folks out there, quit your job. Because frankly, you are a hypocrite if you hop in your capitalist made car, drive down streets built by capitalists, and go to your job at your capitalist owned company and collect their dirty stinking money. Capitalism IS the best system. It just has to work within a system of laws and rules like anything else. Lately, they haven't been.

[JKD]

'transfixed on gust of wind' vs dow as gov't-man's public sentiment indicator... not exactly the same interpretation.

I always appreciate EJ's point of view, there is rarely if ever anything trite or derivative.

I am sure EJ saw the Wilkinson e-mail at The Cunning Realist first and it was an honest mistake, but stating that TCR "discovered" it is inaccurate.

Someone not involved in the trading community or day-to-day obsessions of the financial blogosphere might never notice, but EJ's misappropriation of credit in kinda glaring. Zero Hedge is a very popular and widely disseminated blog and TCR almost certainly saw the Wilkinson e-mail there first (he links to ZH from his blog). My comment was an honest attempt to be helpful.

John

[occdude]

Freedom without responsibility is Tombestone ie.anarchy. Thats why socialism doesn't work, It doesn't allow people to act and react.

[jk]

responsibility without freedom: e.g. taxpayers paying bankers for the bankers' mistakes.

[ax]

Another case in point today, or perhaps it worked in inverse order:

http://www.marketwatch.com/story/con...er-jobs-outloo

"A reading on U.S. consumer confidence surged to 54.9 in May from an upwardly revised 40.8 in April as expectations for jobs improved, the Conference Board reported Tuesday. The gain is the fourth-largest in the 32-year history of the survey..."

Jobs? Didn't those numbers, along with housing, just get worse?

[rjwjr]

Remember the thread (the initial post of which I have copied below) that noted that Goldman's activity was likely steering the direction of the market? If true, wouldn't this mean that very few of us sheeple have a horse in the DOW race any longer? And if very few sheeple have a horse in the race (stock ownership), then why would the sheeples' sentiment be so tied to the variations of the DOW?

[ThePythonicCow]

I'm thinking that, with their direct line to the treasury, this rally will only crash when they let it.

Agreed. Some of the short term technicians that I follow are seeing, in their various special ways, this same thing. Someone is driving this thing, and it's not the usual investors at large.

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