Unemployment continues to remain high, Washington has shown no consensus on job plans and the U.S. global economic recovery is faltering. Naturally, consumers would alter their spending habits to account for the uncertainty.

The latest Money Anxiety Index (MAI) showed an increase in the level of financial anxiety in September. The index rose to 99.8 up from last month and at its highest in over 30 years.

Unlike subjective economic indicators that gauge how people feel about the economy, the money anxiety index measures how economic indicators affect consumer behavior. 

According to Geller’s findings consumer’s begin to modify their behavior to changing conditions, before their confidence (sentiment) starts to wane. In his latest report, Geller points out that the MAI began to rise in October 2006, three months before consumer confidence began to fall in January 2007, and 14 months before the recession hit.

Here’s a chart of the misery anxiety index prior to the recession:

Now here’s a look at the consumer sentiment index prior to the recession:

September’s MAI isn’t anywhere near its 1980s high of 136, but Geller, developer of the index believes rises in the index signal a recession. Now we’re not saying we swear by this data, but if recent retail sales are anything to go by, consumers certainly seem anxious. If you want to check this out for yourself, look the MAI and recession start dates since 1959:

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See Also:

• The 14 States Where Homeowners Are Drowning In Negative Equity
• REVEALED: Why Consumers Are So Depressed About The US Economy
• U.S. Banks Lose Loan Market Share To Government

Original source at: Money Game | http://feedproxy.google.com/~r/TheMoneyGame/~3/by6UQCw3xgQ/us-money-anxiety-index-2011-9

In response to a special request last February, I created an overlay of two major Dow peaks — the 1937 high following the Crash of 1929 and the 2007 all-time high.

Now, a little over six months later, here is an update.

When we align the two highs, we see a radical parting of ways a little over three years into the future.

Here is the same overlay, this time adjusted for inflation, which puts our current price level a bit closer to the corresponding level in late 1940.

We can analyze market data with trendlines, flags, and Fibonacci ratios to our heart’s content. But sometimes market behavior is best understood as a consequence of historical events and policy decisions. The Battle of France in May 1940 was an example of the former. Perhaps the Federal Reserve’s last round quantitative easing is an example of the latter. The results, at least until a few months ago, were dramatically different.

We can look back on Dow history and see the tumultuous impact of World War II on the market and the dramatic recovery that followed. The question now is whether a decade or two in the future QE will be seen as a masterful stroke of economic management or an inadequate or ill-conceived delaying tactic (“kicking the can down the road”) that ultimately worsened the Fiscal Crisis we still must face. This unconventional policy gamble is a game of high stakes — namely, the economic well-being of the United States and other parts of the world as well.

Published at Advisor Perspectives.

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See Also:

• U.S. Household Incomes: A 42-Year Perspective
• Robert Shiller Talks About The Substantial Downside For Equities
• U.S. Is In Recession Right Here, Right Now

Original source at: Money Game | http://feedproxy.google.com/~r/TheMoneyGame/~3/-iQ9lNtylRI/the-dow-peaks-of-1937-and-2007-2011-9

Worries of a Lehman-like financial crisis spreading through Europe and the world has made Greece talk of the market lately. Not to let Greece dominate the spotlight, the U.S. debt ceiling debate is also getting to be as traumatic since a failure to raise the debt ceiling could mean imminent default and credit downgrades for the United States sovereign debt.

In the midst of all these different crises, global markets rise and fall in lockstep with news coming out of Europe and the U.S. The U.S. stock market, after suffering a correction phase since April, snapped back last week, scored the best week in two years, but only to retreat again after the long July 4th weekend. The commodity and currency markets are not immune either, with investors switching back and forth between risk-on and risk-off trades.

In this environment, one has to ask … are there other indicators signaling a global market doomsday?

According to Oxford Analytica, there are 15 “Global Stress Points” ranging from medium to extreme high impact to the entire world. These are listed below ranked by their potential impact by Oxford (see graph). Around 60% of the “stress points” are related to geopolitics, war or unrest, while only about five events could be classified as financial crises.

1. Dollar Collapse
2. Taiwan / China Armed Hostility
3. Israel / Iran Armed Conflict
4. Mexico State Hollowing
5. Global Protectionism
6. Latin America Hydrocarbon Disruption
7. Iraq State Institutions Collapse
8. Russia Military Aggression
9. End of Euro
10. India / Pakistan War
11. Pakistan State Collapse
12. Argentina Sovereign Default 2.0
13. North Korea Military Conflict
14. War in North Africa
15. Lebanon Civil War

(Click to enlarge) Chart Source: Oxford Analytica

For all the rage in the press, the euro’s demise is surprisingly not as big a deal as, for instance, China making good on its 60-year threat to Taiwan, or even a much more mundane “global protectionism.” And I hate to disappoint China Bears, but it looks whatever problems China has, it is not the one that will tank the world like the dollar and the euro.

Since a U.S. dollar collapse is ranked as the greatest risk to the world, and dollar’s fate is largely dependent on if the bond market has faith in Uncle Sam, it might be helpful to add five additional warning signs that the bond market is freaking out (see chart):

• Prices of bonds maturing start falling (i.e., investors start to demand higher interest rates to hold U.S. government debt).
• A narrower spread between rates on Treasury bills and other short-term credit or near substitutes, e.g. LIBOR – This would be a sign of waning faith in the U.S. government.
• A narrower spread between Treasuries and near substitutes – A sign of falling creditworthiness of Uncle Sam.
• Price spikes in U.S. CDS (credit default swaps, insuring against a U.S. debt default) – According to Markit, the most noticeable movement has occurred in 1-year spreads, which have converged closer to 5-year spreads, and is up about 430% since early April, while 5-year CDS also has risen about 46%.
• Higher volatility in the U.S. bond market – Another sign of lost confidence from bond investors.

(Click to enlarge) Chart Source: The Washington Post

So far, out of the 20 signs, there’s one that’s sending up a red signal flare – U.S. sovereign debt CDS, which is directly linked to the dollar (see chart above).

The U.S. does not have control over many of the indicators listed here, but at least the No. 1 risk factor — the U.S. dollar — is influenced by the national debt and by the monetary and fiscal policies set by the U.S. government and the Federal Reserve.

The longer the debt ceiling debate lingers, the more likely the bond market would start reacting and demanding higher interest rates. A sovereign credit downgrade as a result of missing the debt ceiling deadline would just translate into billions more in interest payments, piling on to the existing debt.

The United States is not like Iceland or Argentina, resorting to default as retorted by some could mean calamity not only to its citizens, but also to the rest of the world. Unless the government and this Congress get their act together, there will be no bailout, and instead of one lost generation to the Great Recession, there could be multi-generation missed in the next Grand Depression.

EconMatters.com

Original source at: zero hedge - on a long enough timeline, the survival rate for everyone drops to zero | http://www.zerohedge.com/article/20-warning-signs-global-doomsday