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:
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.