The past couple of weeks finally delivered a little dose of reality. Major indexes like the Dow Jones Industrial Average (DJI: ^DJI), S&P 500 (SNP: ^GSPC) and Nasdaq (Nasdaq: ^IXIC) moved sharply down on consecutive days. Many felt anxious watching January’s gains evaporate, realizing they have some big decisions to make.

Was the pullback a small correction ready to spring board us to higher highs, or is it the signal for bulls to take their profits? The answer appears to be quite different depending on who you survey.

Main Street Indicators

Consumer confidence is up from last month’s reporting according to the Conference Board's U.S. consumer confidence index survey released on 1/26/10.  In response, one may question which consumers they are surveying.  It would appear to be a fair assumption that a majority of the 17.3% total unemployed workers (National U-6 Bureau of Labor Statistics) were not contacted.

Nor, did they survey a dear friend who just received notice of severance options, after 23 years of employment in the communications field.

What about my neighbor, who has been attempting to modify his home loan for a year and is now in foreclosure? Was he surveyed?   My ‘Main Street’ doesn’t look too confident.

What Confidence?

The Conference Board’s Consumer Confidence Survey polls a different panel of 5,000 households each month by means of a mailed questionnaire. As stated in the surveys methodology, “Samples are representative based on key demographics and geographics as defined by the U.S. Census Bureau.” By the close of the survey an average of 70% respond, reducing the number polled to 3,500.

Now, that doesn’t mean the 3,500 were a confident bunch, they were just slightly more confident than last month, sort of.  Lynn Franco, Director of The Conference Board Consumer Research Center, states in regards to Consumers' short-term outlook, ‘the number of pessimists continues to outnumber the optimists.’

I’ll let you do the math, however, it appears when you have 3500 responders representing an estimated population of over 300 million a few unemployed, foreclosed upon, unconfident consumers may be overlooked.  The folks in Michigan and California, where the U-6 unemployment  figures log in at 20.9% and 19.6% respectively, are not fooled by these reports of growing confidence, economic recovery and housing stabilization.

Is There Room for Optimism?
 
Truly, being optimistic has its advantages, but it should never trump reality where your investments are concerned. Harry S. Truman has many now famous quotes credited to him, but none as apropos for our time as, “It's a recession when your neighbor loses his job; it's a depression when you lose yours.”

Although you may not be in a state of “depression”, certainly anyone living in America today is feeling the pangs of a recession. People are forgoing the new car, the vacation, or remodeling their home to keep more of their funds for basic necessities. The course of discretion, then, is to hope for the best while you prepare for the worst. Have we really seen the worst yet?

When the Check Clears

You know the feeling you get when you open a statement or go on-line to check your bank account balance and the number looks kind of too big? For a moment you get excited thinking maybe you added your register incorrectly, and then with a sigh you realize several checks haven’t cleared.

Often, I get the impression that the market makers are forgetting that the “checks” are going to clear; and unfortunately, many are going to be returned for ‘insufficient funds.’ It is only a matter of time before their balances are adjusted to show the true bottom line.

Smart investors understand the rally of recent months has been fueled by ‘something’ other than true economic recovery.  They don’t listen to the same broken sources that led them into trouble in the first place, but to realistic perspectives like that of the ETF Profit Strategy Newsletter. Until “Main Street” has jobs, homes, and some hope, they are not going to be free-spending consumers. Without this force of buyers, the stock market, will sooner or later, tell the tale.