Is a Market and Economic Bottom on the Cards

The Conference Board Consumer Confidence Index, based on a representative sample of 5,000 U.S. households, declined even further in June. In recently released figures the index now stands at 50.4 (1985=100), down from 58.1 in May. The (outlook) Expectations index also declined to 41.0 from 47.3 in May. Consumers’ assessment of present conditions grew dimmer in June as shown by the following reported figures :

– Those claiming business conditions are “bad” increased to 32.5 percent from 29.7 percent, while those claiming business conditions are “good” declined to 11.5 percent from 13.0 percent last month

– Consumers’ appraisal of the job market was also quite pessimistic. Those saying jobs are “hard to get” increased to 30.5 percent from 28.3 percent in May. Those claiming jobs are “plentiful” declined to 14.1 percent from 16.1 percent.

– The proportion of consumers expecting their incomes to increase declined to 12.3 percent from 14.1 percent.

This month’s Consumer Confidence Index is the fifth lowest reading ever and expectations are for further lows; which reinforces an already gloomy outlook for the American economy. For now, the economy seems “stuck” and the share market is hitting new lows every other day. However the silver lining in all this may be that it is darkest before the light, and that all the near term bad news signals a bottom (low point) for the market and economy as a whole.

My view is that we should start seeing things dramatically improve as all the credit and sub prime excesses are cleared. The stock markets, which are forward looking, will be the first to recover and the surest sign of this will a permanent bounce back in the financials (20% or more), a wave of new Initial Public Offerings and a fall in oil prices to less than $100 a barrel. The US dollar should also start to recover it’s strength and the biggest sign that the economy is also back will be a drop in unemployment and a significant recovery of house prices.

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