Wednesday, Jun 3, 2009
Albert Einstein once said: "The problems we face today cannot be solved by the minds that created them."
The bottoming out of consumer confidence indices in the US, Germany, Japan and elsewhere suggests we are near the trough of this recession.
As noted here consumer confidence tends to move in lockstep with the unemployment rate. But confidence is a psychological beast (think bulls and bears) which experiences strong positive re-enforcement from crowd or herd instincts. To see crowd psychology at work invest three minutes in this YouTube video, or if you are really busy just the last 90 seconds. Its fun and educational.
It is entirely possible that the "confidence" we are hearing about is simply fatigue with the gloom far more than true confidence. Supposed increases in consumer confidence (aka exhaustion from lack of confidence) recently are therefore due to our combined acceptance of the new world order. A new order where unemployment is or will soon be at 10% or greater in most places, where we see confirmation that the recent rally is of the bear market variety, where GDP continues to decline, and government borrowings and the historical benchmarks are pressured further.
While the subtle shift from one of staring into an abyss to seeing green-shoots of recovery has been expertly orchestrated by the Obama administration, I fear it may be at least partly an illusion. With lots of talk about bargains, deals and special offers on everything conceivable those in the mainstream media also seem jaded with reporting the deteriorating fundamentals like unemployment, gross domestic product and debt.
As a mountain climber one of the hardest things to deal with is when you reach what looks like the summit to be presented with the reality that what you thought was the top was anything but. It is soul destroying. Presenting a case that we are at or very near the trough now may inflict a sucker punch to a soft underbelly if in fact the recession is far from over. Something that I believe is actually the case.
John Delaney
CEO
Intrade.com