A confident sentiment is in the air! Now what?

Chart: Historical Personal Savings Rate (2005–2021)

Sentiment amongst consumers — Consumer Confidence in economic terms — seems to be off the charts!

In fact, even CEO Confidence, which is a leading indicator of consumer and investor confidence is off the charts as well!

CEO Confidence is a leading economic indicator. When it’s up like it is now, it means that CEOs may be signaling for more hiring, which means more jobs, more raises, and more disposable income, which as we all know leads to more saving and more spending, and that in turn leads to even more confidence amongst consumers and investors to go for it.

You may not know this, but unemployment is actually a lagging indicator of the economy. In contrast to the stock market, which is a leading or forward-looking economic indicator. So what’s happening here — unemployment is relatively high due to the pandemic and yet confidence is running high and the Stock Market is soaring at all-time-highs? Well, like most things it’s simple and it’s complicated. Unemployment figures are backward looking numbers of the recent past. The current strength in the US stock market and the current high CEO Confidence is essentially negating the current weakness in the labor market. They are cancelling themselves out! The future is sort of cancelling out the past in the present.

When there is confidence on Main Street and on Wall Street, we see things like unprecedented savings rates just as we are seeing now. See the chart above showing historical personal savings rates from 2005 to present. Between unemployment insurance benefits and the stimulus packages to businesses and to individuals, we are seeing ton of cash out there.

And believe it or not, we see 1/3 of it being smartly deployed to pay down debts. Another 1/3 is being smartly used to boost savings or rainy day cash funds. The rest is being spent and invested. There is the tons of money flowing in and floating around the US Economy.

So, now what?

I believe that the US Economy is now prime for:

  • the formation of new asset classes of investing,
  • new ways for great companies to take off,
  • hyper innovation
  • mega markets

What do you think?

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