Sentiment Issues

There are several aspects to recent sentiment readings that are worth exploring.

The University of Michigan Consumer Sentiment Index revealed this morn that U.S. consumers are worried about inflation, pressing consumer sentiment index down to 78.7 in August — a greater than expected drop from the prior reading of 84.7 in July.

Why don’t someone tell these dang fools that there is no inflation!  I think its high time the  consumer focuses their consumption only on the products in the core  — where it belongs — and where prices are nice and calm (kinda like the eye on a hurricane). The sentiment readings are down because these silly consumers foolishly insist on buying non-core items. That must stop right away.

Don’t these people know what the Fed likes to focus on? Whatsthematterwith these people anyway? Why doesn’t the American public pay more attention to what matters the most to what economists choose to econometrically model?


Back in the real world, here’s yet another ominous tell to ponder: the gap between current and future sentiment measures. We learn today that Portales Partners observed the spread between current conditions and future expectations in the Michigan consumer sentiment survey is now at levels previously seen prior to the ‘80-‘81 and and ’90-’91 recessions.

What does this tell us? At the very least, these sentiment readings reveal the utter absurdity of the core.

We know Greenspan cut rates too low, and then compounded the initial mistake by leaving them there too long; The Fed has now exacerbated the public with this blasphemy called the core rate of inflation.

The American consumer has figured out the truth about inflation. They have stopped buying the snake oil. The 70% of the economy that shops in stores, malls, gas stations, doctor’s offices and big box retailers every day is none too happy with what is a massive fraud.

No one likes to be scammed, talked down to, cheated, treated as if they were stupid. When the Fed states inflation is contained, the public knows it is a hoax; when academics argue for the Boskin PCE deflator, the public smells the deceit;  when Wall Street Economists cheer a misleading PPI, there may be no public outcry — but they know the swindle when they see one.

They are aware of the entire racket, and it all adds up to decreasing confidence in Congress, the White House, and even Colleges. These deceptions come home to roost in Sentiment Surveys such as this one. You can only fool all of the people for so long . . .

Smug arrogance does not win a whole lot of friends amongst those who live beyond the beltway, where – Core rate be damned – real families must buy food and energy.

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  1. jm commented on Aug 18

    “Real families” don’t even know who Ben Bernanke is let alone what “CPI” stands for. All they know is that gas prices are high and it costs more to live. If there’s a scam it’s being played upon the fed and investment community as the academics calculate away reality. The actual pain of inflation just does as it does, picking away at main street’s quality of life.

  2. Bob A commented on Aug 18

    Here’s the rub. 50% of American voters re-elected an administration that has lied to them time after time in 2004. Most Americans either don’t care or are not able to tell when they are being lied to, or consider it an acceptable trade-off to being able to live their lives in ignorant bliss. They would rather just deal with the crisis when it occurs because trying to predict and prevent crisis strains their brains, interferes with their A m b i e n induced sleep time or golf games or plans for trips to Cabo or Maui. Problems are things that happen to other people like those in New Orleans or Iraq and if we dare to try to change the status quo they might happen to us instead.

    BR: What % of people vote? Its far less than 60% — so half of about half the voting age population went one way — thats actually about 20-25% — not 50% — of the total pop

  3. Bob A commented on Aug 18

    p.s. if any of you run into the spam filter message try putting spaces in words like A m b i e n which might appear in spam emails.

  4. doh! commented on Aug 18

    I don’t think main street minded as long as the value of the old homestead was rocketing up at many times the inflation rate, but now…..yo Ben, time to start warming up the choppers???!!!! I will get out my glue-coated umbrella and wait for your sweet green rain.

  5. JoshK commented on Aug 18

    “50% of American voters re-elected an administration that has lied to them time after time in 2004. Most Americans either don’t care or are not able to tell when they are being lied to”

    I love this line of reasoning. If you disagree with me you must be dumb.

  6. emd commented on Aug 18

    “50% of American voters re-elected an administration”

    I would venture to say that many who voted for W (or against Kerry) in 2004 are suffering a severe case of buyer’s remorse right now….

    Endless misguided war
    High oil/gas prices
    Open borders
    Dubai port deal
    etc etc etc

  7. Rudy commented on Aug 18


  8. wcw commented on Aug 18

    So, recent auto- and home-sales data have you worried, right? Because ’tain’t positive lately.

  9. advsys commented on Aug 18

    These frauds have been going on for a long time now.
    Something like 30% of the country still believes that Iraq had WMD. The govt new housing sales figures just don’t jive with the reports from the homebuilders. 30 – 50% drops in orders. Cancellations are massive yet the govt shows new home sales up. (for those of you who are wondering how this is possible, it is very easy.)

    This is the core of what is wrong with most everything today that is government based. In the business world this is called marketing. It is how we end up believing that Granola is healthy (it has more saturated fats than most cereals and same for sugar)
    It is how the estate tax which is a simple and fair way for someone who has worked hard all their lives, enjoy their retirement years to the max yet allows the govt to collect revenues that pay for social services they will use has suddenly been reframed as the death tax. Can there be a worse association.

    In the business world, if your story is not authentic, you will eventually be discovered and sales will be punished. I believe the same holds true for politics and social ills. It takes a long time.

    What would help is if those of us who have not bought into the lie would find a voice that would tell our side as effectively.

  10. doh! commented on Aug 18

    Also known a spin. And look how long it took the backdating of options to see daylight.

  11. Ricardo commented on Aug 18

    This focus by the fed on the core rate is akin to the fraud perpetrated by qulaity companies like Enron, Worldcom, Adelphia , AIG , etc.


  12. Royce commented on Aug 18

    Massive fraud? Rackets? Yet another inflation-related post? Barry, if you see inflation as that much of an issue you should abandon equities and go totally into gold for a while, because so far neither the bond market nor the equity markets are buying into your view I guess cash is also out). The great part about the free market is that you or anyone else can make a whole lot of money on your perception so long as it ends up being right.

  13. Bob commented on Aug 18

    As a consumer I say who cares. I bought an iPod when it came out. It was obsolete when the Nano came out. I still bought the Nano. I bought a Core Duo laptop and AMD is now going to release its Quad Core procs. I bought a house because I need a place to live. I eat out because I don’t like to waste time cooking. I drive a car that gets about 15 mpg because it its sporty and I enjoy the feeling of driving it. If I shell out $100 bucks a month on gas or 200 I shell it out. It’s like the Insurance salesman says to the guy who asks why it’s so expensive on his Ferrari. The salesman replies, “Sir if you are asking, you can’t afford a Ferrari.”

    Rising rates contains not inflation but people’s eagerness to spend and risk beyond their means. Inflation is a byproduct of this. If you can’t afford a 20% drop in the Dow then don’t buy stocks, stick your money in a savings account and stop complaining. Its risk and if you placed the buy other without gauging risk its your fault on the economy, not the government or deficits, your’s and your’s alone. If you owe more on a house that is worth less and you can’t afford it, again whose fault? Greenspan? Bernanke? Bubbles? No yours. You can always rent or you could have just paid off the mortgage on your original house and stayed there.

    The markets are full of people who tout how great it is or how bad it is. After all that is where the money is. How much do newletter writers charge? How much does Cramer get paid? How many clients do you get for your hedge fund if you write free commentary on a website.

  14. Dan commented on Aug 18

    I think anyone who says “core inflation” should not be allowed to consume any food or energy for the rest of the day. Then be sent to their room for a “time out” to think about the stupidity of their words.

  15. muckdog commented on Aug 18

    The American consumer has figured out the truth about inflation.They have stopped buying the snake oil.

    That certainly can’t be inflationary for the snake oil, Barry.

    OK, during the heyday of the Clinton Economic Miracle, gasoline was $1 a gallon. Now during the Bush Economic Apocalypse, gas is $3/gallon. So discretionary income that used to be used for frappuccinos, cheesecake, movies, and lap dances now goes to OPEC. I understand why that affects sentiment. I don’t think it’s inflationary, though.

    So… I dunno, Barry.

  16. brion commented on Aug 18

    “gas is 3$ a gallon….i don’t think it’s inflationary though”

    muckdog say what?

    America and the entire developed world is based on Fossil Fuel. The whole shebang. From string beans to a m b i e n to the keyboard you typed that bit of ? on. PLUS The printing presses have been working overtime at Fort Knox for how long now trying to wrest the last 3% of value from the 1913 u.s. dollar.

    Here in SoCal, a simple trip to the grocery store tells the tale. Have you got any kids btw?

  17. Big Al commented on Aug 18

    I was thinking about the volatiles in the inflation story and wondered why they could not use a 3 or 6 month moving average to take out the volatility?

  18. Bob_in_MA commented on Aug 18

    “Why don’t someone tell these dang fools that there is no inflation! ”


    Can you state clearly what your complaint is with the perception of inflation?

    Is it you think no one else sees the huge increase in commodity prices?

    That you think the headline inflation numbers are poorly weighted and so don’t reflect properly the increase in commodity prices?

    That you feel any rational for looking at an inflation number that excludes commodities–the core rate–is completely misguided?

    Aren’t the price increases for commodities themselves acting as a break on the economy?

    According to today’s home starts report, 400,000 fewer houses will be started this year from last year. Home equity withdrawals are falling and could evaporate over the next year or two. Job growth is anemic. Retail sales are soft due to gas prices. We clearly are in a slowdown and will very likely enter a recession over the next six to nine months. You yourself link to such forecasts regularly, so I assume you give them some credence.

    Your tone and sarcasm indicate you think someone has it all wrong, but it isn’t clear who. Clearly, everyone is keenly aware of the commodity price increases. So what? Who should be doing what? The Fed should continue raising rates?


    Here is the link to every post I’ve done recently that involves inflation

    There is also a search function at right;

    As much as I try to respond to all commnets, their numbers are rising and its getting difficult to keep up; Please use it before asking specific questions — the odds are pretty good its been addressed already.

    Also, I already have enough homework — I dont need any more assignments !

  19. steve commented on Aug 18

    You keep talking about how much inflation is around and come up with ideas and charts backing your theory up. In the meantime the indexes are going higher. I’ve been in cash for about a month and read your column daily here and Enjoy your linkfest every week. Getting pretty sick of seeing how strong the market is. You may be right but it seems alot of people don’t agree with you. Are you still mostly in cash? Thanks.

  20. Sherman McCoy commented on Aug 18

    Barry- Why do you have to crash this party? As a proud, upstanding Republican I like the inflation reports just the way they are. There is very little inflation right now, and if you continue to say otherwise you are just supporting the terrorists. We scare the public by overblowing terrorist warnings, Barry- we don’t scare them with economic stuff. Economy = good; Iran = bad. Please get it straight.

  21. mobiaxis commented on Aug 18

    Quit worrying about unimportant stuff like that – don’t you know that the alleged murderer in the Jon Benet Ramsey case is a freaky wierdo and made the whole thing up – we should be talking about that instead of things that make my head hurt and might ruin my weekend.

  22. HARM commented on Aug 18

    Why does every debate over whether of not the CPI/inflation numbers are fudged (duh!) end up degenerating into a “Red State vs. Blue State” shouting match?

    What the hell is so inherently partisan about the CPI, people? As I recall, the infamous practice of using “hedonics” and substitution was pioneered during the Clinton Administration, not Bush II. For that matter, the CPI is calculated by the BLS, not Karl Rove.

    I’m not so naive to believe that politics aren’t the reason why it’s being gamed, but let’s be realistic here: it’s being gamed BY BOTH SIDES. When Democrats were in power, it was in their interest to underreport inflation. Now that the Republicans are in power, it’s in their interest to… also underreport inflation.

    Let’s just drop the Red State vs. Blue State B.S. and focus on the numbers.

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