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Consumer sentiment measures the DOW not the economy - Eric Janszen

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  • Consumer sentiment measures the DOW not the economy - Eric Janszen

    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.


    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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    Last edited by FRED; 05-21-09, 08:00 PM.

  • #2
    Re: Consumer sentiment measures the DOW not the economy - Eric Janszen

    What a great piece. Thanks.

    Comment


    • #3
      Re: Consumer sentiment measures the DOW not the economy - Eric Janszen

      Originally posted by EJ View Post



      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

      Comment


      • #4
        Re: Consumer sentiment measures the DOW not the economy - Eric Janszen

        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. ;)

        Comment


        • #5
          Re: Consumer sentiment measures the DOW not the economy - Eric Janszen

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



          http://www.NowAndTheFuture.com

          Comment


          • #6
            Re: Consumer sentiment measures the DOW not the economy - Eric Janszen

            Originally posted by JKD View Post
            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.

            Comment


            • #7
              Re: Consumer sentiment measures the DOW not the economy - Eric Janszen

              Originally posted by EJ View Post
              The DJIA index is used by the FIRE Economy financial media to sell the current state of the economy.
              an extremely important point.

              Comment


              • #8
                Re: Consumer sentiment measures the DOW not the economy - Eric Janszen

                Originally posted by bart View Post
                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?

                Comment


                • #9
                  Re: Consumer sentiment measures the DOW not the economy - Eric Janszen

                  Originally posted by metalman View Post
                  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.



                  http://www.NowAndTheFuture.com

                  Comment


                  • #10
                    Re: Consumer sentiment measures the DOW not the economy - Eric Janszen

                    Originally posted by bart View Post
                    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.

                    Comment


                    • #11
                      Re: Consumer sentiment measures the DOW not the economy - Eric Janszen

                      Originally posted by bart View Post
                      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?

                      Comment


                      • #12
                        Re: Consumer sentiment measures the DOW not the economy - Eric Janszen

                        Originally posted by icm63 View Post
                        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:
                        медведь

                        Comment


                        • #13
                          Re: Consumer sentiment measures the DOW not the economy - Eric Janszen

                          .."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.

                          Comment


                          • #14
                            Re: Consumer sentiment measures the DOW not the economy - Eric Janszen

                            Originally posted by icm63 View Post
                            .."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.

                            Comment


                            • #15
                              Re: Consumer sentiment measures the DOW not the economy - Eric Janszen

                              Originally posted by metalman View Post
                              '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

                              Comment

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