How Confident are You?

The consumer confidence index didn’t rise as high as expected on Friday. The stock market struggled all day to rally. This less than expected rise occurred in the context of the following:

1) $112/barrel oil, down $3 from the day before, and $35 from about a month

- Do I really need to explain why this is positive?

2) The dollar rallied to a 2 month high

- Apparently, other people’s economies are worse off then ours. Which means US business regains competitive advantages on the domestic front…instantaneously.

3) Wal-mart reported strong sales the month of the tax rebate

- Everyone said that they would save their tax rebates…but they spent it at Wal-mart. I just hope they didn’t buy any of those ugly crocs shoes. Based on Croc’s stock price…I seriously doubt they did.

4) Sears only lost 64 million dollars

- This company has 1.4 BILLION in cash in a horrible retail environment and they only lost 64 MILLION? That’s a pretty good record in my books. I couldn’t tell you how shocked I was when I saw this article predicting a Sears bankruptcy. Here is a very excellent response to those assertions.

5) Ralph Lauren posted strong numbers

-I like the fully button down versions of their short sleeve shirts.

Consumers are cautious is downturns…and morons in good economic times. For god sakes, the consumer confidence index was 90 before the Bear Stearns collapse! It was even higher the month before! Some of the rebound in July was likely a result of headlines discussing the crash of crude oil futures, but everyone knows the cynical phrase about oil prices:

“Up like a rocket, down like a feather”

My point in all of this is to say that simply because consumer confidence is not as high as expected, doesn’t mean the consumer shouldn’t be optimistic. In other words, consumer confidence is a lagging indicator- it indicates the PAST consumer environment, not whether the environment will get better or worse in the near-term.

In light of the above described positive events - I’m calling the bottom:

It is my assessment of current market conditions and expectation of future market trends that the S&P will not close below its 52 week low at 1,200 before it exceeds its 52 week high of 1,576.

I think the italics makes my statement look more dramatic.

*Smirks*

I called the top of the oil bubble about a month or so ago, so it only makes sense that I make some assessment on oil prices:

My research has shown that under the most likely demand scenarios oil price will continue to extend its slide below $100/barrel by January 16th, 2009.

Furthermore, I believe there is a very strong possibility that oil will reach a more permanent valuation no lower $75/ barrel, but no higher than $85/barrel at the latest by January 15th, 2010.

Finally, the non-trivial possibility of a moderate to severe economic contraction in China in the next 6-12 months as a result of over-expansion of manufacturing infrastructure presents the possibility that there is further acceleration in the decline in the price of oil. Another major downward pressure which has already started to show is a slowdown in the European Union. Under these pressures, the price of oil may reach the above proposed price of $75-85 before January 15st, 2010, potentially as early as market close July 17th, 2009 but also by market close on October 17th, 2009.

Wow, those italics look dramatic AND authoritative. I should write like that all the time.

-Mansij Hans, E.I.T.
Member, Intigril Capital Management

Note: My views on the market bottom or oil prices do not necessary represent the view held by other members of the Intigril Capital Management board.