Consumer Confidence Declines to Lowest Level in 16 Years

The Conference Board's announcement yesterday has confirmed what all of us already knew- the American consumer is scared about the future. Declining home prices, problems with banks, an ever-rising cost of gasoline have all conspired to convince most Americans that the economy's prospects look dim.
One of the debates that has dominated Wall Street and Washington over the last 7 years is whether the economy is actually performing well or not. Inflation, unemployment, taxes and GDP growth have all been characterized by consistent readings that would be considered "good" by most standards. What Alan Greenspan described as the Age of Turbulence has by and large given way to an "Age of Moderation". The first decade of the 21st Century is likely to be remembered as one of relative prosperity and stability in terms of growth, against a backdrop of international tension.
That having been said, perception trumps reality - at least in the short term. And across the spectrum, there has come an increasing perception that oil prices will remain permanently higher and inflation has emerged from a long haitus that began in the mid-1980s - creating poor economic conditions and manifesting itself in a recessionary economy. As the Gallup data below reflects, this view has expanded across the economic spectrum. What is most striking has been the rapid deterioration of public perception since the beginning of the year.

This negative perception extends to the investment markets, where investor optimism, already in a secular decline since 2000, as similarly plummeted. As the chart from UBS / Gallup demonstrates, investor optimism is definitely DOWN.

Naturally, this begs the question - what does this mean for a long-term investment strategy? Research has overwhelmingly (perhaps even conclusively) indicated that no one can reliably pick the bottoms of markets, but there certainly reason to believe that we're certainly closer to the bottom than we are to the top, given the negative general attitudes that dominate the current environment. As I stated earlier, the last time that consumer attitudes were this negative was 16 years ago. As the chart below demonstrates, this was not a bad time to buy stocks.