A lower consumer confidence index manifests slow and stealth stagnation in the economy – what are the effects in stocks, bond, gold, and dollar?
Kirsten McLauren
Jun. 25, 2007

The lower consumer confidence number confirms the stagnation in the economy. It is the result of higher gasoline prices, lower home prices, higher interest rates, and a stagnating stock market getting ready to topple.

What is the net effect of lower confidence number on in stocks, bond, gold, and dollar?

The stock stumbles because it perceives lower economic growth and hence lowers earnings by the corporations. The bond market, especially the shorter end of the yield curve, rises. The longer end is dependent on the inflation pressures. But the shorter end rises fast because the Fed can and will lower the short term rates.

The lower rates can have a good effect on stocks, if it is perceived that corporate earnings will still be strong because of lower rates and lower inflation. If inflation is perceived to be rising, the stock market suffers.

The effect on gold is positive because lower short-term rates. The dollar falls and gold rises. Stagflation is great for gold bullion prices. Stagnation ensures that the short-term rates are lower. Inflation is fundamentally bullish for the gold market.

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