Mark Gregory Turansky

What can you learn from the consumer confidence index?  Plenty, if you’re a fan of Warren Buffet!

Let’s look at this graph for a moment and focus solely on the points where consumer confidence slipped below 70: 1974, 1980, 1982, 1990/1, 2008.

1974

The first big dip on the consumer confidence graph above is October 1974 when the stock market tanked 40% in a single year (why does that sound familiar?).  How did Uncle Warren feel at that time?  “Like an oversexed guy in a harem.” The quote is from a Fortune article from 1974.

Note that consumer confidence cratered in 1974, touching below 60.  Buffet’s feeling was “Now is the time to invest and get rich.”

And what happened after the crash? Up 30% in one year.  Up 60% in two years.

1980

Another big dip in consumer confidence in 1980.  Lower than 1974.  If you were waiting for clear bargains in the stock market, how would you have faired?  Had you bought in the panic, you’d have gained nearly 30% in a couple of months.

1982

Consumer confidence gained after the 1980 dip, only to retreat again in the recession of 1982.  From nearly any point in 1982 (DOW around 850) to nearly any point in 1983 (DOW around 1250), you’d have gained 47%.

1990

Another hit to consumer confidence in 1990-1991.  Bill Clinton campaigned with the theme “It’s the economy, stupid!”   From the panic to the recovery by Clinton’s inauguration day (a little over a year), you’d have gained33%.

NOTABLE CRASH - 1987

Black Monday (again in October!) saw a 22% decline in prices.  Your shares would have recovered in two years, but buying in the panic yielded 16% in one year and 50% in two years.

 RECESSION 2002

We all know the market hit record highs in recent years, but simply focusing on the panic (again, October!) yielded 25% in a year and lots more if you held for another 5.

TODAY!

It’s October again and the market is down 40% year over year.  The world is ending!  Panic ensues!  Everyone get out of the market before all the banks melt!

Consumer confidence is as bad as it was in 1974, when that decade saw oil shocks and a renewed focus on ending dependence on foreign oil.  Sounds familiar.  History repeats itself.

But “it’s different this time!”  Maybe.  Yes, we’ve lived beyond our means as a nation for twenty years.  Yes, the housing bubble is causing a global financial mess that requires us to recapitalize our banks, but the Asian Tigers did it in the late 90s and Sweden did it in the early 1990s.  It costs money and it’s painful, but we’ll recover.  The dollar, incidentally, has surged during this global crisis.  Traders are moving towards a currency and economy they are confident will recover.

We might be good and truly screwed or this might be another deep panic by the masses.  It might be a good time to be an oversexed man in a whorehouse.

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