Submitted by Tyler Durden
Yay verily, Michigan Consumer Confidence jumped more than expected and there was rejoicing all around. Of course, a simple scratch beneath the surface reveals what many realists suspect, expectations for the future are the major driver of the headline number. Unfortunately we have seen exactly this pattern before. Not only are the levels and changes similar to Q3/Q4 2008 but the underlying events (recessionary concerns, banking liquidity concerns, crisis of confidence) are eerily similar. The we’ve-been-down-so-long-it-has-to-get-better crowd psychology is intriguing as the rise in hope over the past four months is the largest in over 30 months as the delta between current reality and the green green grass of next year drops. While animal spirits are arguably of interest in short-term macro cycles, we note that the ramps in the hopium index tend to last 4-5 months at most and that is where we are now.
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The upper pane is the Expectations (hope) index and the lower pane shows the four-month rate of change – impressively expectant of a miracle off such lowly lows.
More importantly, look at the red ovals in the chart above. Comparing the current and expectations indices to the period around Lehman in 2008 suggests a very similar picture of reality. Interestingly, perhaps we are just a little more jaded (and less optimistic) now as the hope index was unable to rise as much as it did back then and we all know how well that period ended!
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Charts: Bloomberg
This seems more than a little pessimistic. But then I suppose one must consider the source…