The Economy and Consumer Confidence

I read the news. Of course, I don’t like to believe every­thing I hear. I also hold what­ever I read to some level of skep­ti­cism. But I still read a lot of sto­ries and take most things “with a grain of salt.”

One of the lat­est head­lines on the Wall Street Jour­nal news today read:

Com­mer­cial Real Estate Lurks as Next Poten­tial Mort­gage Crisis

Of course, The Huff­in­g­ton Post (where I orig­i­nally read this head­line) loves to sen­sa­tion­al­ize head­lines in order to attract read­ers (they have a habit of sen­sa­tion­al­iz­ing things — but is that any­thing new with the news?) In some ways, sen­sa­tion­al­ized head­lines can have a major impact on how soci­ety behaves and inter­acts — as well hurt­ing or help­ing the stock mar­kets — and I do take issue with that as I really pre­fer objec­tive news sources.

This arti­cle has direct con­se­quences with main line of busi­ness which is archi­tec­tural ren­der­ings — so it is a legit­i­mate con­cern for peo­ple in my field and it did get my atten­tion. But I have a few points to make in regards to the WSJ arti­cle. Let me begin by giv­ing you a lit­tle infor­ma­tion about my background.

Over a sum­mer ago, I day traded for slightly over a month right as the econ­omy went sour. With­out going into too much per­sonal detail, I traded a lot stocks and a lot of value in that time-frame. I actu­ally was given a TD Amer­i­trade Apex account based on the amount of trades I was mak­ing. I walked away just about even.

Later on, I talked with a few peo­ple over at TD Amer­i­trade and a cou­ple of them stated that they were amazed that I walked away with my “shirt intact.” Now, I’m not try­ing to brag about this. But what I am try­ing to con­vey is that I’m also not a “com­plete fool” either — I do have some first-hand knowl­edge of the stock mar­ket, com­modi­ties, as well as gen­eral eco­nomic issues on both a micro and macro level — prob­a­bly more so than the major­ity of peo­ple. And I have a good sense of mar­ket psychology.

That being said, I wit­nessed how the mar­ket behaves in times of panic. I’ve also wit­nessed how the news feeds into people’s fears of how things “really” are. You see, peo­ple in many ways behave to some degree with pack/herd men­tal­ity. For exam­ple, if you’re in a crowded club and every­one around you starts to run for the door — your nat­ural incli­na­tion would also make you want to run for the door as well — even if you have no clue as to what is going on. I could prob­a­bly eas­ily list over a hun­dred exam­ples how we all tend to behave and mimic each oth­ers pat­terns. The same applies to the stock mar­ket — if bad news hits a news­pa­per or tele­vi­sion chan­nel about a com­pany — investors usu­ally won’t take the risks and will pull their stock, caus­ing more peo­ple to sud­denly yank their stocks out as well.

What we are cur­rently expe­ri­enc­ing in this coun­try and even on a global level is sim­ply fear which orig­i­nally had some roots in real­ity (real­ity being high oil prices and bad lend­ing prac­tices.) Con­sumers are afraid to spend money because they are afraid they will need it later on. They’re also afraid that they may lose their jobs. Busi­nesses are also afraid that they will lose projects and fur­ther income. And to a large degree, this is actu­ally what is hap­pen­ing. Peo­ple are in a neg­a­tive feed­back loop — instead of gain­ing “con­sumer con­fi­dence”, they are hold­ing back and wait­ing to see how and if things will improve. And in many ways, this also is a sim­i­lar pat­tern to how the stock mar­ket behaves.

This feed­back loop is dan­ger­ous. Essen­tially, peo­ple don’t want to spend money so busi­nesses aren’t mak­ing money as well. And since the busi­nesses don’t make money, they have to lay off or fire peo­ple. Now, those peo­ple are def­i­nitely not spend­ing any more cash because they’re out of a job. And this process keeps repeat­ing until you essen­tially hit “rock bot­tom” or some­thing is put in place to restore that con­fi­dence. It is a very dan­ger­ous down­ward spi­ral that keeps on feed­ing on itself.

Now, I’m not say­ing that one should com­pletely “ignore” the warn­ing signs. The signs are def­i­nitely there and it pays to exer­cise some level of cau­tion. But what I am try­ing to empha­size is that just because you’ve seen a pat­tern develop, rec­og­nize that a lot of this is based on sim­ple psy­chol­ogy — or “con­sumer con­fi­dence.” There’s even a term for “con­sumer con­fi­dence” on Wall Street — it is known as the “CCI” or “Con­sumer Con­fi­dence Index.”  You can read more about it here:

http://en.wikipedia.org/wiki/Consumer_Confidence_Index

So our “con­sumer con­fi­dence” is cur­rently in fairly bad shape. We’re basi­cally dri­ving an old, beaten-down used car and when one thing starts to break, other pieces start expe­ri­enc­ing prob­lems as well — which is the point of that Wall Street Jour­nal arti­cle. Busi­ness Real Estate is cur­rently suf­fer­ing because our over­all econ­omy has started to tax that par­tic­u­lar part of the system.

How­ever, “it is what it is” and there’s no sense in com­plain­ing because the dam­age has already been done. Instead of let­ting our “lack of con­fi­dence” drive our fears, we as a nation really need to stand up to the issues and say to our­selves — “this can be fixed and even bet­ter yet, improved upon.” We really need to stop think­ing “bad” and start using the word “good” again. In this country’s tough­est times — at the end of the depres­sion and the start of WWII — after the attacks of 911 — we as a coun­try picked our­selves up and did exactly what we needed to do. We started to build and spend again. We started to invest once more in our futures. We need to take that bro­ken down car and repair it — or bet­ter yet, build a new and improved one. We need to fix our method of going about pro­duc­ing once again.

What we are cur­rently expe­ri­enc­ing is noth­ing short of a global enema. It is a global colonic. It is the fal­low for the fields. It is a grow­ing pain. It is a trim­ming of fat from the meat. Where some of you see gloom and doom — I see that we are in the process of heal­ing as a nation. We need those peri­ods of trou­ble in order to fix what is wrong and improve for the future. We, in some ways need this “wake up call” in order to move for­ward. And it’s not as bad as some peo­ple make it out to be. We’ve actu­ally cut down to some degree on pol­lu­tion here in the United States due to hav­ing less money in our wal­lets — we are dri­ving less. We are also being less waste­ful. We aren’t buy­ing bot­tled water and dis­pos­able dia­pers like we used to. And regard­less of whether or not you “believe” in global warm­ing, I think we are all of the opin­ion that we should research more effi­cient means of energy pro­duc­tion. There have been a lot of pos­i­tive lessons we have taken away from these trou­bling times.

So, while I’m not advo­cat­ing that we all go out and blow our next pay­check, what I am say­ing is that we need to rec­og­nize that we bring a lot of this econ­omy on our­selves sim­ply due to a lack of con­fi­dence and feel­ings of inse­cu­rity. On the other hand, we will run into some prob­lems a long the way to improve­ment. But we can work through these issues. You have to spend to some degree in order to keep busi­nesses and employ­ment alive. And per­haps most impor­tant of all, we need to start think­ing opti­misti­cally again in order to sup­port one another.