On August 31st, when we learned that consumer confidence had plummeted to rock bottom levels, I said (in the posting Consumer – lower confidence is GOOD news!):

“What’s important, is that optimism concerning stock markets is far more warranted when consumer confidence is low because expectations (and valuations) are low – and when at its lowest levels the only sensible prediction is that things might get better.”

Since that time:

• U.S. retail sales trounced expectations in September, jumping 1.1% while August’s flat reading was revised up to +0.3%. (Ditto for July…..was originally up 0.3%, now 0.4%.)
• U.S. housing starts surged 15.0% in September, the first increase since June and well above the consensus call of a 3.7% gain. The resultant level of 658,000 units a.r. was the highest since April 2010 and leaves starts up 38% from its record low of 478,000 units just 2½ years ago but still 71% below the highs….way back when.

When the consumer is really miserable, he/she begins the spending spree that ignites economic activity – the opposite of what most experts believe (of course). We know that The University of Michigan’s consumer sentiment index unexpectedly weakened further in early October, so does it follow that this month the malls and automotive dealers will be jam-packed? To compensate for even lower ‘confidence’ will folks finally start shopping for housing? Most definitely!

In my posting (Asset Allocation points to RALLY!) dated September 29th, I suggested the mere fact that expert investors were content to be seriously underweighted equities (and overweighted cash) was a good sign that the stock market would rally imminently.

By golly….right again!

Brilliant? Hardly. These unorthodox interpretations of data stem from thirty years of experience. nonstop observation and research, and many severe lessons in humility. I wrote a book about many of those hard lessons learned (A Maverick Investor’s Guidebook). The bottom line is some analysis is good, some is bad and like most seasoned professional fund managers I’ve had my share of reading and creating both.

The expression ‘do as I say, not as I do’ is apt. I haven’t made any money at all over the past many months – when it comes to my own measly account I never heed my own advice. I am a perfect example of the typical consumer though…despite having taken a couple of years holiday I too buy things when I’m miserable (much to the chagrin of my lovely wife). I stick by my theory that the lower consumer confidence is, the brighter is the future for the economy and markets.

NERD