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The Crisis Of Confidence

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By Colin TwiggsMarch 3, 2009 8:00 p.m. ET (12:00 midday AET)

These extracts from my trading diary are for educational purposes and should not be interpreted as investment or trading advice. Full terms and conditions can be found at Terms of Use.
The key to economic recovery is consumer confidence. As discussed in last week's Shoveling Dollars Into A Bottomless Pit, we are experiencing a crisis of confidence in the financial system. Consumers are not going to revert to normal consumption patterns until their faith in the system is restored. We need to monitor this closely. The best indicators of consumer confidence levels are confidence surveys, retail sales, housing affordability (a combination of prices, mortgage rates, employment and incomes), manufacturing levels, and unemployment.
Confidence Levels
Consumer confidence as measured by the Conference Board is at an all-time low since the start of the series in 1997, while Consumer sentiment is testing the low of 50 from 1981. No sign of a recovery at present.

Retail Sales
The drop in retail sales is the most severe, percentage wise, since the early 1980s. A fall to $150 million would equate, roughly, to the early 1980s twin recessions.

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