Bifurcated Sentiments

Lurking just below the Conference Board's headlines about August consumer confidence is clear evidence of the time-shift schizophrenia that has gripped Americans, going on several months now.

Here are the relevant charts (via Market Harmonics), for yet another month:

• The headline number jumped a healthy +6.7 points to 54.1. Not a stellar reading by any means, but a whole lot better than the abysmal 20's reached earlier in the year.

• ..but it came about, as it has for several months now, only because the forward-looking Expectations part of the index has been rising sharply. It is now back to 73.5; in August alone this sub-index jumped +10.1 points. Yes, that's what hope looks like in chart form.
  

• Meanwhile, Americans' view of their present situation (you know, that pesky reality?) is refusing to budge much from the bottom.

We thus have a bifurcated citizenry, one that views their present situation as bleak - and how could they not, with unemployment and home foreclosures at highs not seen in decades? - but at the same time views the future as shiny and bright.

Of course, expectations historically lead reality and a close study of the above charts will show this. For example, the Expectations index bottomed out in the Spring of 2003 around 60 and then jumped 30 points, even as the Present index stayed put. This 50% rise was, however, understandable given the "victory" in Iraq. Remember the powerful images of the (staged for TV) toppling of Saddam's statue in Baghdad, which worked as a powerful psychological release.

Today's situation, however, looks entirely different to me. The Expectations index has tripled, all right, but based on what? On the wholly religious belief that the Fed and the government hold magical and instantaneous powers to arrest and reverse a disease that has been eating away at the foundation of the U.S. economy for many, many years. The symptoms are well known: huge debt, bubble asset markets, stagnant earned income, zero saving rate, a devastated manufacturing sector..

I don't know what name psychiatrists should give to this syndrome of opinion bifurcation, particularly if it persists for a long time. Perma-optimism, chronic delusion, The Eternal Hope of A Befuddled Mind, Waiting For Godot? But I do know what sentiments will rise if this very strong hope does not soon materialize into the tangible reality of a robust economy: frustration and anger.