Blog : The Confidence Game

by Ed Zwirn on May 31st, 2013

As this abbreviated trading week draws to a close, distracted by everything from barbecues to the Peter Leeds Penny Bank Contest, the skittishness of the stock market stands in stark contrast to the signs of confidence seen among the wider public.

Real estate is nothing if not a confidence game: Tuesday's Case-Schiller 20-city index release showed a March real estate price rise of 10.9%, much larger than expected, following a February increase of 9.3%. This is the steepest monthly spike for the index, which is still 29% below its July 2006 peak, since April 2006.

And with real estate having succeeded in partly clawing its way back to its pre-crash level, the stock market boosting spirits and even a jobs market showing slight improvement, it should hardly come as a surprise that consumer confidence is responding.  Both consumer confidence reports issued this week showed sharp upticks for May.

The interesting thing about this upsurge in consumer confidence is its apparent disconnect with the actual lot of consumers. According to updates issued Friday morning, personal income in the U.S. remained absolutely flat in April, following a 0.3% rise the prior month, and, all sentiment aside, personal spending fell 0.2%, after having risen 0.1% in March.

Doing the math, the overall sentiment of consumers is apparently rising much more quickly than the conditions being experienced on the ground by these same consumers. Just like the market for everything from penny stocks to blue chips, this sentiment is on the rise more to the perception that things are looking up going forward than any positive assessment of the present.

The upshot for penny stock investors may well be a new trove of opportunity. Penny stocks dependent even indirectly upon a housing recovery should be poised for better times. The same may possibly hold true for a high-tech penny stock company poised to market a new consumer app. If you think your consumer-driven penny stock investment vehicle has a shot, it ought to start performing.

Of course, this is all occurring in the context of a (possibly) fragile feedback loop. By now, everybody you meet on the street can tell you that the stock market has hit another high, and many of them are looking seriously at penny stocks as a quick route toward riches. The penny stock pickers who have been here ahead of this loop should stand a good chance to win big in the market to follow.