Confidently Consuming (aka "Space Pants")

A quieter week on the political front after a torrent of gestures, handshakes and photo-ops – whether any real productive outcome will manifest on the back of it all will become clear in the following fortnight; when the UN will have to decide on sanctions against Iran (most likely) commit to environmental pledges (don’t hold your breath as greater ice-formations melt into the Arctic Sea) and Obama’s make-or-break healthcare reforms start their formalisation process – the future fitness of his presidency directly linked to the outcome – no wonder he’s shooting more hoops than ever. As for the economy, emerging markets continue their rampage (in a good way) with investors flocking to attractive valuations and their insatiable appetites for yield, making what were once untouchable areas barely a year ago now the belles-of-the-ball. Even with Russia banning beer sales in kiosks and retail outlets (accounting for 25% of sales, guess only Vodka can be sold there now) there remains a giddy and froth-like performance surrounding the once-almost obliterated Moscow bourse (+100% YTD). Something else to bring a smile to the face? Cirque Du Soleil’s creator has paid $35m to be the “first clown in space” – with the notorious lack of water and hygiene difficulties on the international space station his mission to “bring non-stop-laughter to the astronauts for 12 days” may end in a space-plumbing-disaster if he gets enough laughs.

Following some media discussions on recent disappointing indicators of consumer confidence, just how important is common sentiment to an economic recovery? What level of psychology manifests itself in an individual’s desire to spend? If you believe the latest economic data out of the US, confidence is at a low equal to this time back in March when markets underwent a rather not-so-nice downturn – something now considered a horrible moment relegated to the past but fresh enough in memory to cause more than the slight jitter. Investors shrugging off concerns of the “real” economy and stock indices around the world joyously entertained the swathes of cash swimming about, not least amongst the emerging economies as aforementioned - would you have believed Sri Lanka’s index (barely several months since the military situation was resolved) would be within the top 5 performing indexes in the world at the start of the year? Or that Vietnam would really finally have its day and return 85% this year so far. Peru’s 131% world-chart-topping return another great reason/excuse to visit Latin America – no doubt a stop in Rio en route to “stretch the legs”.

In what has been a widely noted and often ill-reported occurrence, a great disaster of confidence took hold in Dubai as its property market slumped and the once shining glint of a polished surface gave way to plenty of deep inner-reflection of a rather less-polished and altogether rusting sort – the same was definitely true for other similar boom “ego-fuelled” and property-hub driven markets such as Hong Kong and Singapore, but why have we seen prices there sky rocket back towards record levels in little more than 18mths, whereas the precipice like falls in Dubai persist? Rather than talk of new records being set for luxury apartments and champagne corks being popped, the only popping here is the sound of nicotine-replacement chewing gum as real estate agents line up at the airline desk on their way out. Despite a great change in atmosphere since those dark days earlier this year, the confidence factor is just not quite there. Hong Kong’s carefully considered control of public announcements and an almost unanimous decision to lower prices across the city brought out the best in the consumer within. Ensuring the public there felt safe enough that others were making (and spending) money; authorities have been able to return to an environment of almost-as-brazen confidence as before. Dubai’s continuing woes and negative press have prevented as similarly a strong resurgence.

Confidence is without doubt another human trait capable of undergoing manipulation and a certain degree of “moulding” at the hands of well-informed and skilful marketing operators. When the crisis experienced its deepest darkest moments it certainly felt as though the global-powers-that-be were in a tail-spin for a few days – the swift recovery was associated with a noticeable shift in tone of international news channels, newspapers and governmental announcements. Undeniably, it has all worked out – so far. The only problem is, as repeated often in pieces here and elsewhere, that the normally-as-reliable-as-a-Wall-Mart-hammer US consumer is not playing ball. The upper-class and more affluent investor may be having fun in the financial markets, moving his excess liquidity around and enjoying a great playing field, but the less fortunate are still hiding from view – explaining vast empty store-car-park lots. Some will surely point out that although the consumer is probably the main point of concern in the nascent recovery in the US and elsewhere, there are instances where headline consumer confidence does not appear out of line with some rebound in GDP growth. Basically, consumption patterns are unpredictable and not always closely associated with the more “human” confidence factor. Apart from the “I’m-rich-and-always-will-be” brigade though, I really think this time around confidence matters more than ever.

A reflection perhaps of some of the problems consumers are dealing with as above? One normally super-confident claim the Japanese have enjoyed was always the unrivalled attention to detail and uncompromising build quality of their world-envied cars – Toyotas in particular, especially their Lexus “luxe” brand. As sure as being ripped off for a drink at a Dubai “classy” bar, Toyotas would get you from A to B in relative style, but stringent safety. In a sad development that shatters even that last bastion of liberated and selflessly-provided--absolute faith in this reliability and safety, Toyota has had to announce the recall of almost 3.8m vehicles (equivalent to the total number of cars sold in the US in the last two years!) due to some really quite worrying oversight concerning the driver-side floor mat that has been reportedly causing the accelerator to stick and sadly been the cause of several fatal crashes.

With the utmost respect and adoration for anything Japanese, not least Lexus, this final assault on a bastion of confidence is just too much too handle with all else happening around – probably better off just leaving it all behind, donning a pair of waterproof trousers and joining the clown in space.

Best Rgds,
Hani