Bob O'Brien
Head Instructor
bobrien@mywealth.com
When the strong Consumer Confidence numbers came out today, it begged me to ask the question: Do we really want consumers too confident? The numbers were good, but I really think it depends on from which perspective you are coming from. Was it good news when Real Estate was up 12% or so again in 2005, and homeownership reached all time highs? Turns out it was not!
I am really glad that people are feeling a little better about themselves and the economy. I give the Obama Administration and Ben Bernanke a lot of credit for this. People are really breathing a little better again, but old spending habits die hard.
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We have been tracking US consumer confidence for over 40 years, and I think when it started in 1968 it had some real value, but now it seems like one of those indexes (like many of our regulations) that has become outdated over time.
Over the last 15-20 years, we should have been checking for America's "over-confidence in over consuming”! The fact that 70% of the economic activity comes from consumer spending is the problem!
The US Consumer is still very weak, regardless if he/she is spending.
This economic crisis stemmed from too much confidence, and not enough rational thinking. In addition to horrible risk management, money management and irrational exuberance for things like Stocks and Real Estate.
America really changed last year, and people are starting to save more money. This trend will continue for a couple of generations to come and an economy where its people are capable of striking a balance between spending and saving should be seen as the good thing! Not just spending!
The US may well become the first balanced economy, in which we save, spend and invest like rational human beings.
A lot of people out there are confused right now as well they should be. They have been told that recessions happen because people do not spend enough. On the other hand, the reason that we got into this economic mess is because they spent and borrowed too much.
My advice to them is to save, because money is the new political weapon of the 21st century! In addition learn to invest and you can do that by taking our investment course and currency courses!
Once you have learned to save and invest, then learn to spend and enjoy your money like a rational person!
If the global economy is going to work, other nations are going to need to consume more and not necessarily the United States. Consumer Confidence in China, India and other BRIC nations are far more important to the US growth (SPY) than our own consumption and confidence.
With all the debt piling up in the US the last thing we need is need is a lot of confidence about borrowing and spending again.
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