Monday, July 23, 2012

The State of the U.S. Consumer

Several weeks ago, I balked at the negative consumer sentiment number. I saw activity, I saw happier faces, and I saw pocketbooks being opened, so that negative number did not reflect the real current economy in my opinion. The activity at that time was quite good. After a long layoff and a roller coaster ride that would make Magic Mountain shake, consumers came back a few months ago.

When I questioned that report, and suggested that it be discounted completely, I did so because I saw a surge in activity. Not only did it stabilize, but many consumers also came back in force. I could argue that many women finally got the opportunity to shop again, but that would separate men, who also were out in droves. Everyone seemed to have a pent up desire to spend.

Is this human nature? When we are forced not to spend, do we want to do it more and more. And if so, when we get the green light to spend again will we clamor over each other to reach the cash register? My current views shed some light on these questions.

At this time, from my observations, the surge in consumer re-participation is abating. They were strong a month ago, and that lead to my former conclusion. Since then, they have backed off.

With that, we are probably going to have stronger confidence numbers, and analysts are probably going to be late to the game again, but I see reasons to be concerned, not reasons to be in frenzy. If we receive a report in the next few days or weeks from some analyst or news agency that suggests consumers are going to accelerate spending, I will balk at that too.

My observations suggest that consumers came out of the gates aggressively, but the turnout now is much lower. Some are still there, much more than a year ago, but the numbers are less than a month ago. People are just not as interested because they have gotten that spending bug out of their system already. Now, it is back to reality.

Therein lays the problem. The consumer had a pent up demand, they acted on that emotion, and now they are coming to tough conclusions again. Many of them are realizing that they cannot afford to keep up that pace. Shocking! America is finding the need to budget, at least many consumers are.

If they are given a compelling reason, I am sure some consumers might step up to the plate again, but without that, I am seeing signs of tightening. I am observing a restraint that was not there a month ago. From that, I believe the future data will reflect an abatement of demand.

The Overshoot

This fits directly in line with our overshoot. Clearly, I have been preparing you for this overshoot for a long time now. I have also been talking about the Investment Rate and its accuracy for eight years. To you commercial real estate buyers out there, who are not getting the deal of the century on a foreclosed property you can turn around and sell immediately for a profit, think twice. Think twice about buying at the tail end of this overshoot, and think twice about doing it in the first couple of years of the third major down period in US History too.

The observations I am making now fit in line because the data we will see will lag. The data will not show the signs of a consumer pullback until the data shows signs of consumer re-participation first. Yes, we are starting to get data that shows that now, but there will be more before it is over. That could help push us to the overshoot we are looking for, and give us that opportunity to short we are measuring.

Like a boxer using a straight arm, I am measuring our course of action, and laying the groundwork for what I think will be exceptional positions soon.

With more positive consumer data on the horizon, and a clear abatement taking place in real time, I am looking for an overshoot, and then a taste of reality. After this positive data, a turn down will come. When it does, Wall Street will be hit again.

However, I cannot say that smart money will lead the way. In fact, many smart money investors, at least those who I thought I respected for being ahead of the curve, seem to be falling prey to the Market just like everyone else. The proactive approach that has been proven for years is once again being discounted by the masses, but some smart money investors seem to be doing the same thing. Maybe that is because they own some assets at extremely low levels. My guess is, it is because they want to own more assets at those low levels, they are in search of those opportunities still, and they have forgotten about securing gains in the assets that have already appreciated.

All classes of investor are being dragged back in. This is exactly what we have been waiting for. These are the classic signs of an overshoot. We have been bullish, we have been on the long side, we have been riding the wave up, but because we do not care about direction we can also turn on a dime. That is what proactive investing is all about. When you tie your assets up in investments that depend on a stronger economy or a higher market, our proactive approach does not satisfy your emotion anymore.

In the end, I have not designed our system to satisfy emotions. I designed it to rid us of emotional burdens. If you are emotional, if you are giddy, if you are nervous, stop. Sit back, relax, and let them come. I am watching, I will always be watching, and I will always do my best to keep you ahead of the curve too. Stay proactive, stay liquid, stay on the course. We have been planning for this, it is happening now, and we will take advantage of it.

Disclosure: No positions

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