Minyanville's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:

1.   Consumer Confidence

First the hard economic facts:  The Conference Board this morning said its Consumer Confidence Index fell to 95.6 from a revised 99.5 in September.
 

  • The reading marked the lowest level of Consumer Confidence since October 2005 when it was 85.2.
  • Analysts had expected 99.5.
  • Meanwhile the gauge of expectations for the next six months dropped to 80.1 from 85.
  • Combined with declining home prices (see today's Number Three) we can now see a little more clearly how the economic risks are shaping up as being well beyond the Federal Reserve's perceived control. 
  • How so? 
  • This leads us to today's Number Two...


2.  Here's Your Bull Market

So stocks are near or at all-time highs, the bull market is now five years old, so why does it feel so bad?  Seriously. 
 

  • Consumer confidence is the weakest it's been in two years. 
  • Retailers are worried about the upcoming shopping season, fearing consumers are in cutback mode, largely due to the evaporation of perceived housing wealth. 
  • But the stock market says everything is OK, right? 
  • And isn't the stock market a forward discounting mechanism? 
  • One of the advantages of sitting near Todd Harrison over the past three years is an up close view of his asset class deflation versus dollar devaluation theme. 
  • Please read his views here.
  • Wanna know why it feels worse than the market says? 
  • Take a look at the chart below. 
  • This is your bull market from TV.
    S&P 500, 2002-Present, weekly (Click to enlarge)
  • And this is your bull market, priced in gold.
    S&P 500, 2002-Present, weekly (Click to enlarge)
  • It feels bad because in reality (gold terms) it is bad.


3.  Case-Shiller Housing Index

The S&P/Case-Shiller home-price index, a private survey designed to scare the bejeezus out of everyone each month, showed home values declined 4.4% year-over-year in August.
 

  • The decline was the most in six years, and the eighth consecutive drop.
  • Economists forecast the gauge would decrease 4.2%, but even that proved to be overly optimistic.
     
  • "The fall in home prices is showing no real signs of a slowdown or turnaround,'' said Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, in a statement.
  • "There is really no positive news in today's report," he added. 


4.  What Everyone Wants to Know:  How's It Gonna End?

The Wall Street Journal's Greg Ip this morning makes the case that although the market is pretty well convinced the Federal Reserve will offer up a rate cut tomorrow  (November Fed Futures are currently pricing in about a 95% chance of a 25 basis point cut), "for the Fed itself, it is a closer call."
 

  • "The behavior of financial markets implies near certainty by investors of a quarter-point cut in the Fed's key short-term interest rate. But for policy makers, the decision is between the quarter-point reduction and no cut at all," Ip writes.
  • How so? 
  • "The case for remaining on hold comes down to the economic forecast," according to Ip.
  • We disagree with this.  In fact, we'd go the other extreme.  This has nothing to do with economic forecasts and GDP growth.
  • Of course, in a tangential manner, Mr. Ip is correct that, in a sense, this really is about the economic forecast and GDP growth.
  • But only if one factors in that credit growth and liquidity are these days virtually synonymous with GDP growth. 
  • The bottom line, and mainstream disconnect, is that economic growth, GDP growth,  and increasing economic forecasts are each dependent upon credit growth in some fashion.


5.  Didn't We Settle This Already?

We couldn't let the Wall Street Journal article go without noting one final thing.  "While housing data has deteriorated further, there is little sign so far that it has spilled over to the broader economy," Ip wrote. 
 

  • Really?  Housing hasn't spilled over into the regular broader economy? 
  • Are we still even debating this? 
  • “We are in the window-covering business, and you don’t cover windows in houses you don’t build,” said Myron E. Ullman III, the chief executive of J. C. Penney (JCP) in the New York Times recently.
  • Sales at Macy’s (M) and J. C. Penney have fallen five of the last six months, the Times noted.
  • Sales at Kohl's (KSS) have fallen in four of the last six.
  • Target (TGT) recently cut sales estimates based on the consumer and the outlook for the broader economy.
  • UPS (UPS) expects the slowest fourth quarter growth in four years.
  • We could also list the ongoing layoffs in the Financials space related directly to losses on housing, but you get the point.