September 1, 2011 - Consumers are Telling Porky Pies

Featured Trades: (CONSUMERS ARE TELLING 'PORKY PIES')

 

2) Consumers are Telling Porky Pies. When I was working on the trading desk at the London office of Morgan Stanley I became familiar with the particular argot they speak in the East End, otherwise known as 'cockney'. A form a slang originally developed to keep bobbies guessing their true intentions, cockney can be as puzzling to outsiders a Greek hieroglyphics. Just in case you did not grow up in Spitalfields, Whitechapel, or heaven forbid, Bethnal Green, I'll give you a hint about the true meaning of 'porky pies,' that it rhymes with 'lies.'

The porky pies I am talking about are the ones consumers have been telling pollster's about their sentiment towards the economy. They have been informing both private and government opinion collectors that they are worried about the future, they are defensive in their investments, at that their spending plans are modest at best. It seems that all they want to buy are bonds.

Yet, almost every economic data point we have received over the past month has shown a modestly improving economy growing at a rate of around 2%. Only just this morning, July factory orders came in at a healthy 2.4%, against only 0.4% in June. Apparently consumers are telling anyone who asks that they hate their future, and then run out and buy a new car, a refrigerator, or a big screen TV.

I spoke to several local car dealers yesterday. To a man they told me that sales were good, now that the 2012 models are out. Only the hybrid Chevy Volt has been a complete disaster. After 40 years in the business, I have learned that when facts conflict with opinion, go with the facts every time.

This is not the first time that the public has told fibs to opinion gatherers. You often see it in politics, where individuals express their deep concern over the budget deficit and the national debt, but won't reveal a single spending program they are willing to cut them.

What this means is that the economy is better shape than the markets are currently discounting. They have discounted a recession that isn't going to happen, and that the surprise move in risk assets this fall will be to the upside. The double dip is nothing more than a great way to eat ice cream.

I think that the carnage we witnessed in August was a onetime only panic induced by the Tea Party's engineered near default on Treasury bonds. As that event passes into the rear view mirror, and investors look at how far prices have fallen, we might see a flood of money that pours into risk assets everywhere.

Nothing More Than a Fantasy?