Why Consumers Are Wrong About the Economy Again
Wednesday, June 4th, 2008
By Michael Lombardi, MBA for Profit Confidential
Confidence amongst U.S. consumers fell to a 28-year low in May, according to the confidence index of Reuters/University of Michigan Surveys of Consumers. The biggest concern among American consumers: Inflation.
The two largest culprits behind inflation are presently food and energy. If we take the two out of the equation, inflation is actually going down. In April, core inflation (which excludes food and energy) actual fell from March.
Will we soon have the rapid inflation we experienced in the early 1980s? I’m not so convinced it will happen. And here’s why:
House prices are falling faster than they ever have. Anything related to construction or housing is also falling. Auto prices? They are falling, too. In all reality, house prices and car prices have actually been deflating for the past two years. Can we have inflation while the two largest lifetime expenses of American consumers are falling in price? I think not.
But the inflation numbers the government releases each month are based on a very old formula that does not take the cost of housing in as a large element. Mortgage installments are likely the biggest single cost of American families each month… but they are not properly reflected or accounted for in calculating the official inflation numbers announced each month.
Monday, our resident technical expert, Anthony Jasanksy, made a great case in PROFIT CONFIDENTIAL for $100.00-per-barrel oil. As I write this column this morning, oil has just hit a three- week low. My readers know my angle: When analysts and reporters are coming out in droves predicting $150.00-to-$200.00- per-barrel oil (like they did last week), it probably won’t happen. Oil will likely go the other way, as the market always delivers what’s not expected of it.
Food is the wild card. Prices have been rising for a variety of reasons and I believe there is good cause for concern about rising food prices. But at the same time, I’ve never seen a single item, like food, bring the inflation rate significantly higher.
The “crude” fact, if you don’t mind the pun, is that when consumers in general have a strong feeling about the economy, like they do now with consumer confidence at a 28-year low, they are usually wrong. I see better times ahead, as I believe the worse for the U.S. economy is behind it. I also see deflation as being an equal, if not greater, threat to the U.S. economy than inflation.
NEWSFLASH: Alan Greenspan, likely the biggest maker of economic “bubbles” this generation has ever seen, said he doesn’t see another bubble coming for a long time. Speaking to a group in Montreal, Canada, Greenspan said that bubbles cannot form when inflation is rising, as he sees happening right now. I think Greenspan is right. I just can’t see current Fed chief Bernanke repeating the same mistakes Greenspan made.
Next Post: Automaker Market Adapting to Soaring Fuel CostsPrevious Post: Retail Sector Chaos Could Mean Chance to Buy Cheap
Tags: inflation, oil prices, oil stocks
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
