Tuesday, September 1, 2009

The Thin Veneer of Confidence

It was 50 degrees this morning. I am shocked at how fast the fall seems to be rolling in. Traffic was much higher as well due to schools opening up this week.

The Thin Veneer of Confidence
I would like to lead off by saying it was almost surreal to see a down day in the markets. I guess I am just conditioned for a positive close, so the when the indices closed about at the lows I was shocked.

That said, I have already seen some of the more bearish types high fiving and getting excited about a new downturn. I would agree fundamentally, but this market is still flying on hope. Be careful here one and all.

What was most interesting to me about today is two items that served to peel back the thin veneer of confidence that has been the mission objective of policy makers since the beginning of the crisis.

Car Sales Numbers
The "Cash for Clunkers" program no doubt was able to borrow car demand from the future and burn it this summer. Expectations varied from 13.3 million to 15.5 million light vehicle sales (Zero Hedge has estimates, real number, and a projection). While the August reported number of 13.7 million beat the low end of consensus estimates, it is my opinion that the street was looking for a print over 14 million. They did not get it.

If US buyers cannot be lured into taking on a huge car loan when handed a few free dollars, this does not bode well for a consumer spending rebound in the near term. The low number also calls into question the supposed ability of the government to "stimulate" the economy. I think today's report is going to damage confidence going forward.

Banking Problem Rumors
The more revealing event of the day was a rumor that some large bank may be facing serious issues, and possibly a failure. I will not recount the various players mentioned (they ranged form some big US banks, to some smaller firms, and all the way to Europe for candidates) as it is not important at all. What is important is that after all of the support programs by the FED and Treasury, banking stocks that have doubled or even more in price, calming words all around, and excess reserves made available from the FED, the mere mention of a bank failure had the following response today:

Which bank is it? It could be anyone so lets sell them all.

It could be anyone.

Not quite the response those propping up the banks would have wanted.

I think this is a key point and it speaks to the serious disconnect the markets have been showing from reality.

When you take the lower than really estimated car sales number and a investment public ready to pull the trigger on a bank failure rumor in 5 minutes it would seem confidence has either been damaged or never really existed to begin with.

Today I was thinking of Bernanke's recent "We saved the world" speech. I would argue they were successful at changing the subject from bank liabilities and loan losses meaning practical insolvency to speculation on just how the government would bail out the system. The core issue never went away, it was just ignored while observers tried to see just how far the FED/Treasury would go to support banks. After unprecedented support programs (and the bending of some laws) the banking sector does not seem more insulated from problems, it was just that nobody bothered to ask for a while.

Again, I see a market that goes higher from here, but today we had a glimpse of what can happen if the confidence game takes a hit.

Have a good night.

8 comments:

watchtower said...

I was listening to the radio today and they were saying something to the effect that manufacturing had growth and also something about pending home sales being up and the next thing I know they are telling me the market is tanking.
I was away from any real news source at the time so I was thinking "what in the world is going on?".
Now at least I have some sort of clue, I wonder what these people out here who never try to dig any deeper are thinking?

Lisa said...

The assault on America continues, relentlessly. Obama says only union workers allowed for federal construction projects; the NEA recruiting for propaganda art; Obama to give speech to K-6 students on Sept. 8 (see my blog). I've had enough for one day....oh, wait...the Dems want to push through the healthcare bill without any Republican vote. But, Sen. Gregg vows to fight them. Let's hope the war stays in Congress and off the streets.

Anonymous said...

I've been watching this market shoot up on all kinds of flimsy, fudged 'reports' and 'better than expected earnings' where the bar was set so low it could be crawled over. Maybe now the senior folks who actually know how to read the data are back from holidays and slapping the junior staff upside the head for not reading through any story beyond the first paragraph.
I don't know if there's anything to the rumors - could just be the set up for yet another nasty short squeeze or maybe, where there's smoke there's fire.
I just find that for months now the markets have moved and only afterwards, headline writers look for something to explain it. Manipulation? Again, who knows.
I think the bigger story was the China-derivatives-default story that made it only to Reuters and a handful of blogs. And I think it's likely what really caused the panic.

GawainsGhost said...

Well, I took possession of a Grand Touring RX-8 this afternoon. And all I can say is, holy sports car, Gawain! I didn't know you were buying the Starship freaking Enterprise.

Neither did I.

Let me tell you, sports fans, this is one fine ride. Smooth handling, quick acceleration, perfect brakes. Nice.

I haven't figured out how to work the navigation system yet. And I have to study the owner's manual to understand all this car can do. But as it is, just driving it is sheer pleasure.

Lisa said...

Congrats, Gawain! I hope you have a great time with that car. Navigate yourself up my way and let's cruise the streets :)

watchtower said...

Gawain
I'm glad you got your RX-8, hope you enjoy it as much as I'm enjoying the Mustang Bullitt (which quite frankly is way more than I thought I would).

GawainsGhost said...

Well, I took the RX-8 out for a spin on the open road this morning. Had to, couldn't help myself, you know.

This car is one sweet ride, sports fans. Really. Nice and quiet--well, except for the 9-speaker surround sound Bose stereo blaring out the Rolling Stones (Exile on Main Street), that is.

Smooth, sensitive handling, very good acceleration. I'm impressed.

It started to drizzle as I was coming home. The computer sensed the rain and turned the windshield wipers on automatically! That's how sophisticated this car is. The navigation system talks to you while you're driving. Unbelievable.

To move up from the olde truck to this spaceship is an out of this world experience.

garydrew01 said...

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