Who's right, Main Street or Wall Street?

Even as consumer confidence surges, investors and CEOs are growing increasingly pessimistic. They can't all be right.

By Anthony Mirhaydari Nov 1, 2012 2:26PM

Couple Out Shopping copyright Fuse, Getty ImagesPeople are getting euphoric out there. Maybe all the negative campaign ads are having a reverse psychology effect. Or maybe the signs of life in the housing market have reanimated dormant animal spirits.  Whatever the cause, the Conference Board's Consumer Confidence Index has surged to its highest level since early 2008.

 

Yet at the same time, big money managers on Wall Street are just about the most pessimistic they've been in 14 years, while newsletter writers are also gloomy. And as I've been writing about for weeks, CEO confidence is way down, as are hiring and capital spending plans, with expectations for the future back at late 2008 levels.

 

So, who is right? Consumers or Wall Street and the CEOs?

 

As I've said before, CEOs have historically had a better read on what's around the corner. They watch the intersection of demand, supply, and pricing and see the data in real time. Investors are a little behind the curve, since the data they use is at least one month old (major economic figures) or as much as three months old (corporate earnings).

 

 

Consumers tend to be the laggards since they assess the economy based on lagging indicators like job growth, home prices, and commodity prices.

 

 

And while stocks have been bouncing around recently, the truer story is being told in ancillary markets, which are suggesting "risk off." Treasury bonds are basing nicely as buyers seek a safe haven. Commodities remain under pressure. The CBOE Volatility Index ($VIX) -- Wall Street's "fear gauge" -- is perking up. And junk bonds, which are one of the best gauges of investor confidence, are dropping out of a consolidation pattern and threatening to fall through a 50-day moving average for the first time since the May market meltdown. 

 

What sends this thing over the cliff? A weak jobs report? The outcome of the elections? The economic context is still negative.

 

If Obama wins, Congress will resist a push for more taxes. If Romney wins, a Democratic Senate will resist maintenance of the Bush tax cuts. The "fiscal cliff" of spending cuts and tax hikes worth some 5% of GDP is still out there -- with the added complication of the Treasury hitting its $16.4 trillion debt ceiling sometime in January or February. The economic consequences of CEO nervousness and a pullback in capital expenditures and hiring plans are still out there.

 

And in Europe, Germany isn't happy about the growing need for debt writedowns for Greece, nor is Greece happy about the austerity terms Germany is pushing. A Greek court today warned that planned pension cuts and retirement age increases may be unconstitutional, even as the coalition government is losing support from its leftist members.

 

For now, I am looking to Friday's jobs report for an indication as to who's right. I continue to recommend my clients and readers maintain a defensive posture by focusing on picks like the Direxion 3x Treasury Bull (TMF).

 

Disclosure: Anthony has recommended TMF to his clients.

I found TMF with the help of technical screens developed with Fidelity's Wealth Lab Pro back-testing tools, which you can find here. (Fidelity sponsors the Investor Pro section on MSN Money.)

 

Be sure to check out Anthony's new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at anthony@edgeletter.c​om and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.

 

VIDEO ON MSN MONEY

26Comments
Nov 1, 2012 8:10PM
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Obama has a lot on his plate with the fiscal cliff.Hard choices have to be made.By the

way, the gamblers are giving Obama a 75% chance of being reelected.Those are people

who would sell their mother for a dollar.My money is on them.

Nov 1, 2012 6:55PM
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Don't be surprised the numbers have been manufactured by BO then they get revised down next month. I saw this with housing sales, employment #s, Oil inventory, number of jobs created  for four years already!. Economy with  No Progress No Improvement other than in the numbers published. 
Nov 1, 2012 6:54PM
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Consumers have the power to make themselves right, but will they do it? As for me, if Obama wins , it's cut back time, I can't afford him.
Nov 1, 2012 6:40PM
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Did you know that if you sell your house after 2012 you will pay a 3.8% sales tax on it? That's $3,800 on a $100,000 home, etc. When did this happen? It's in the health care bill and goes into effect in 2013.

Why 2013? Could it be to come to light AFTER the 2012 elections? So, this is "change you can believe in"?

Under the new health care bill all real estate transactions will be subject to a 3.8% Sales Tax.

If you sell a $400,000 home, there will be a $15,200 tax. This bill is set to screw the retiring generation who often downsize their homes. Does this make your November and 2012 vote more important?

Oh, you weren't aware this was in the Obamacare bill? Guess what, you aren't alone.

There are more than a few members of Congress that aren't aware of it either.

Nov 1, 2012 10:52PM
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Find out what Anthony is drinking and order me a case.

 

 

Nov 1, 2012 4:10PM
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Garbage!  He's just trying to make a not so subtle inapropriate pre-election political statement;  it's time he's replaced.
Nov 1, 2012 7:36PM
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The stock market historically has done better under the Democrats then under the Republicans, pure and simple.  Go Obama, Go!
Nov 1, 2012 5:23PM
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and that etf would be down 2% today....even though the 30 year bond was only up 5 basis points

there is no way to play the bond market short term or long either you believe interest rates will

stay at these levels or you think they will move up after election....betting a leveraged etf on rates

going down further is russian roulette..you are far better taking the long view and buying an inverse

mutual fund like RYJUX slowly over time which is not leveraged and which, when rates go back

up and they have to will pay you handsomly

Nov 4, 2012 11:43AM
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If past behavior is the best predictor of future behavior why would anyone who wants a stronger, more patriotic America vote for a Romney/Ryan ticket?  Patriotism is not measured  by the amount of $$$ in your IRA or off-shore accounts.  And those who don't recognize women as citizens with equal rights in wage compensation and ability to control their own health issues are ego driven, controlling, bullies.  Why do GOP tools continue to manufacture issues that discrimate against the fairer sex.  We have laws that were suppose stop racism and bigotry, and misogyny.

 

Nov 1, 2012 8:37PM
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Historically, the market has done much better with a Dem in the WH.With most of the

media being right wing, you`ll never hear that from the press.It was up 228% with Clinton, down 37%

with Bush and up over 60% with Obama.Our right wing press never mentions that.

Nov 1, 2012 8:10PM
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If romney wins every time I have a choice between a corporate product and a small business product  I will choose the small business as corporations will eventually destroy us....
Nov 2, 2012 7:49AM
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How much of the CEO discontent is manufactured for effect to try to defeat obama in the present election?  Anything for their bottom line.  We don't need to turn our society into a Romney type "free market" .  How about a stronger, healthier USA?

 

Nov 1, 2012 10:47PM
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If you think it's bad now, it's a nightmare to imagine if Romney  was in the office 4 yrs ago.

Now cross your fingers and pray hard about the future if by some miracle Romey wins.

The 47% will be homeless and the middle class will become < then 47%. Brace for another war.

Nov 1, 2012 4:14PM
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Yes I'm  euphoric, Romney is going to win!!!!!!
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