Friday, March 28, 2008

The Psychology of This Week's Data

We took time to analyze this week's economic data in some detail and sprinkle in a little commentary. Now that we’ve reached the end of the trading week, we’ve trimmed this article down to Friday.

Friday March 28th
8:30ET: Personal Income, Personal Spending, and Core PCE Inflation.
The data points are not market moving since they focus on income.

Some economists argue that as income rises, people consume and therefore spend more. Over the last few years U.S. investors have witnessed unimaginable depreciation in real estate, the most widely held asset class. Therefore income, even if it were to rise unexpectedly, may not be spent as quickly as in previous years. Remember Unemployment Data has been rising lately and the U.S. consumer may save more during these rainy days. Retail Sales in April will be a much better datum for investors.

10:00ET: Michigan Consumer Sentiment (University of Michigan).
This data point is at its lowest level since 1992 and, just like the Consumer Sentiment, bears close monitoring. It’s a particularly important indicator since it judges sentiment, which is a better indicator than personal income in our opinion. Look for stabilization in Consumer Sentiment due in large part to the aggressive Fed rate cuts since January. The cuts will definitely stimulate the consumer eventually, but it will take time. My Professor once stated that "tweaking the Fed Funds rate is like steering a huge ship just after midnight, the ship eventually turns without you feeling the initial few inches of pull”. Although we have not reached our destination yet, the Captain has tweaked the rudder, so expect a change shortly: All Aboard?

We predicted a climactic day in our March 9th piece 'The Psychology in the Upcoming Week', and it came with Bear Stearns on March 17th.

We also told our readers of rumors ‘over manhattans in Manhattan’ of a Fed bail out; that also happened. The "foundational crack" in the credit market is still an issue, although recent Fed intervention cannot be completely discounted either. The issue we now have centers on how loudly or softly Washington addresses regulations on Investment Banks. With all the economic data ahead this week and the continued unwinding of large Institutional positions in Oil and Gold, our readers will have their plates full. We urge you to use smaller portions, limit orders, and chew slowly, as this ship has just begun to right itself in our opinion. The ‘market for stocks’ is diverse and dynamic, so approach it from that stand point rather than the general and misleading term ‘stock market’.

We made mention of Goldman Sachs Chief Equity Strategist Abby J. Cohen recently, so we would be remiss if not to wish her a healthy and happy retirement: Bon Voyage Abby, many ‘window shopping’ days ahead! The Psychology of the Call team thanks you for your continued and sincere support, and please click on 'Comments' directly below and tell us what YOU think.

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