Consumer Confidence In The Longer Run

Let's go back to the basics. Price is determined where supply meets demand. When demand rapidly shrinks (more sellers than buyers), prices rapidly shrink? Isn't that funny? Such is the way of stock prices. Short-term prices are determined by the big guys in the banks who play in the markets all day. Then, there are us poor folk who wouldn't be able to keep up because we work another job that doesn't require us to look at multiple Bloomberg-filled screens all day. 

A good temperature check on the general direction of the markets would be the various consumer confidence indexes out there, especially the CCI (Consumer Confidence Index) and Michigan's Consumer Sentiment Index. When there are strong results or opinions showing up in these indexes, we definitely know where the prices for stocks will be headed for the longer term. This is just a general rule of course. Certain companies or industries aren't necessarily ruled by this.  If consumers are spending too much money on gas and have very little available income left, they won't be spending anywhere else, that includes most goods and services sold.

You could also ask the person next to you. Do you see them spending more or saving more in FDIC-insured holdings? How long do you think it will take for them to change their opinion of the economy and begin to change their spending habits? Quickly? Of course not. That's what Bernanke warned today. Hopefully, his words will set consumer expectations at the right level...not too high, not too low. It'll be a slow recovery. Change never is.

p.s. Tomorrow we'll most likely see a lull in the markets, as in less volatile levels, if the prices don't drop. In this case, you could buy sometime during the day. If the prices do dramtically go down, I would say, a good time to buy, especially after 2pm, better if you time it for 3:30-3:50. In a down day, prices tend to dip to their lowest. If you're busy at that time, well, why not put in an order at a limit price that you won't kick yourself over paying? I'm pretty happy with my GE purchase. Today's low was 19.01. But at a dividend of $0.31 per quarter, I'm still yielding 6.36%, definitely  higher than the dinky 2-3% return I get from my CDs and money markets.