All of these add up to one thing: lower consumer confidence.
Even Warren Buffett thinks we are in a recession.
The Consumer Confidence Index dropped to 57.2 in May, down from 62.8 in April. The index, a key barometer of consumer sentiment, is down for the fifth straight month, and is at its lowest since October 1992, when it registered a 54.6 near the end of a recession.
I don't know about you, but I certainly didn't need a report to tell me that consumer confidence is low.
The evidence of poor consumer sentiment and the reasons behind it are everywhere. Look no further than your local gasoline station or grocery store to see why people have less to spend on non-essential items.
Earlier this week, it was reported that Americans drove 11 billion miles less in March than a year ago. It might just be that consumers are making fewer trips to the mall, but something tells me that ever-climbing gasoline prices are behind this.
When someone in the Cabot office fills up their tank they often report the damage to the rest of the staff. After the morning commute, or right after lunch, you'll often hear things like "I just had my first $60 fill-up." And everyone will groan and guess when gasoline will hit $4 a gallon (and beyond) here in Massachusetts. (It's getting pretty close; as I write this, a gallon is going for $3.89 down the street.)
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Food Prices Rise While Jobs Decline
I've written before about the global food crisis and how it's affecting people from Iowa to India, and the cost of food also plays directly into consumer spending. If people are paying more for groceries, they have less to spend on non-essential items. Consumers also may be anticipating more increases in gasoline and food costs, leading them to spend less now and save more for the future.
I'm from a rural area of New Hampshire (on the shores of Lake Winnipesaukee) where food has always been expensive because of the distance it must travel to be sold in tiny markets. But on a trip home for Memorial Day weekend, my jaw hit the floor when I saw how expensive everything was in the grocery store. Vegetables, bread and milk were hit particularly hard, with some things doubling in price from only a few months ago!
And it was obvious during the holiday weekend that fewer people were up on the lake; boat traffic was way down from past years. Gasoline at a nearby marina was $4.39 a gallon, which surely deterred people from taking their boats out of storage or for long rides.
In fact, just last week I read an article in The New York Times about how boat repossessions are on the rise. Boats definitely qualify as non-essential items, unlike houses, groceries and even gasoline for cars. To me, it's just another example of people cutting their spending on luxury goods, mainly because they're emptying their wallets on essential items ... and that leads to a lower reading on the consumer confidence meter.
While it's a good sign that new home sales are up slightly, they are still near the lowest level in 17 years. This information was released the same day as data that showed home prices fell 14% from the year before, the steepest drop in 20 years.
The headlines blaring across CNN sound the alarm almost daily that the job market is weak. Some recent gems include, "Recession proof your job," "Six ways to prepare for a layoff" and "Surviving the evolving job market." Unfortunately, like many non-essential items that aren't being purchased, many non-essential jobs are being cut, too
And the cries of recession haven't died down, despite a stock market uptrend since the mid-March low. Just last weekend Warren Buffett, the billionaire investor, said that we are already in a recession. Former Federal Reserve Chairman Alan Greenspan echoed Buffett, telling the Financial Times that there is a greater than 50% chance of a recession. Though the economy is not technically in a recession, there's no denying that it has seen better days.
How will this affect the market? Our editors tell you regularly.
How will this affect you?
Let us know, send us an email or post on the Cabot Forum, http://www.cabot.net/forum. We'll compile the comments and publish them in the next Cabot Wealth Advisory Weekend Digest.
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In the December 2005 issue, we recommended buying William Wrigley, which was recently bought by Mars Candy and Warren Buffett. Subscribers walked away with 51% profit.
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In case you didn't get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, we have links below to each issue.
Cabot Wealth Advisory 5/29/08 - Walking Down the Aisle
In Thursday's issue of Cabot Wealth Advisory, Michael Cintolo wrote about how planning his upcoming wedding has helped him learn lessons applicable to both life and investing. Mike also wrote about some of the stocks leading the market right now. Stocks Mike likes: Cleveland-Cliffs (NYSE: CLF), Walter Industries (NYSE: WLT), Alpha Natural Resources (NYSE: ANR) and U.S. Steel (NYSE: X). Stocks Mike doesn't like: Lehman Brothers (NYSE: LEH), Wachovia (NYSE: WB) and Bank of America (NYSE: BAC). Click the link below to read the full issue.
Cabot Wealth Advisory 5/29/08 - Pop Goes Clean Harbors!
In Friday's issue of Cabot Wealth Advisory, Timothy Lutts wrote about how the U.S. economy is in a period of transition and what he believes are some of the best investments to have right now. Tim discussed Clean Harbors, a Green stock that recently hit a new high and was recommended previously in Cabot Wealth Advisory and Cabot Green Investor. Stocks featured in this issue: Clean Harbors (Nasdaq: CLHB). Click the link below to read the full issue.
While our subscribers are scattered all over the world, some of you live right here in New England, and those who are close by will have a chance to hear one of the Cabot editors give a talk next week.
Paul Goodwin, analyst and editor of Cabot China & Emerging Markets Report, will speak to the Boston Investor's Business Daily Meetup Group on Monday, June 2 at 7 p.m. The talk will take place at Massachusetts Institute of Technology, Building E51, Room 345, in Cambridge, Massachusetts.
The subject of Paul's talk will be Picking Winning Emerging Market Stocks. His presentation is the only item on the agenda. The meeting is open to anyone who is interested in investing in emerging markets.
Paul will outline his view of current market dynamics focusing on the emerging markets of China, India, Russia and Brazil. Using stock recommendations from the top-performing Cabot China & Emerging Markets Report, Paul will talk about the Cabot approach to growth investing, including the use of market timing indicators, Cabot's guidelines for stock selection and the sell disciplines Cabot uses to control risk. He will also talk about the appeal and the limitations of investing systems.
For more information or to RSVP to the IBD Meetup Group, go to http://ibd.meetup.com/64/calendar/7931052/
Editor's Note: If you're an aggressive investor who's always looking for the next hot stock, Cabot Top Ten Report might be right for you. The Report brings investors the 10 stocks with the best momentum in the market each week. This publication is perfect for investors who like to watch their stocks closely or are always looking for new ideas. Click the link below to find out how you can find out about great stocks that are leading the market.
I'll be back with you next Saturday. Have a great weekend!
Until next time,
Editor of Cabot Wealth Advisory