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Tuesday, November 30, 2010

Consumer Confidence up however Home Prices are Falling, So Let's Go Shopping (Michael Pento)

CNBC and the market was giddy with a better than expected Consumer Confidence number that clocked in at 54.1. WOW! That must be uber good. Well...

Consumer Confidence readings during 82-83 recession were 58 to 88. During the 90-91 recession, consumer confidence readings came in between 58 to 100 and during the 2001 recession, readings were two times today's uber good number (85 to 118).

Tuesday, November 30, 2010
By: Michael Pento

Yes, we are all now fully aware that the consumer is back. Confidence is up and spending has increased. The Conference Board, a private research group, said its index of consumer confidence increased to 54.1 in November, from a revised 49.9 in October, which was first reported as 50.2.

But data released today from The S and P/ Case-Shiller Home Price Indices should dampen shoppers’ enthusiasm. The U.S. National Home Price Index fell 2% in the third quarter of 2010. On a national basis, home prices are 1.5% lower than their year ago levels and 15 out of the 20 cities measured were down over the last 12 months. On a monthly basis, 18 cities posted declines from August, compared to 15 month-on-month drops in August and just eight in the July report. Home prices are headed lower because of tight credit, high unemployment rates and a huge backlog of foreclosure properties.

On a separate note, the recent move higher in the dollar index reveals little about the true strength of our currency. The DXY is up .4% today mostly on Euro weakness. However, the price of gold surging $20 an ounce clearly illustrates the true direction of the dollar. Saying the dollar is gaining purchasing power today is akin to believing someone falling off a cliff at 90mph is actually flying, just because his buddy is dropping at 95mph and will therefore will hit the ground first.

Free money and a massive increase in government debt have managed to temporarily levitate the serotonin levels in consumers’ brains. But interest rates will soon soar either due to the free market or courtesy of the Fed. Then the party ends. If you don’t believe me ask the Greeks and the Irish how they became insolvent in a matter of a few days. It wasn’t because the amount of debt suddenly surged but because the interest payment on that debt suddenly skyrocketed.

Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.

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