Is confidence just a dream?

We have rising unemployment, declining real estate values, rising government debt, a record level of consumer debt, a doubling of foreclosures and bankruptcies,and the inevitability of rising taxes. Who is confident now? In the face of these facts we have a government that has helped us be confident. The drop in the headline consumer confidence index fell from 54.8 in May to 49.3 in June, presumably reflected this month's 15% surge in gasoline prices. Confidence remained well above February's record low of 25.3, but it has yet to recover to the level of 61.4 scene when Lehman's collapsed last September, let alone the levels normally associated with a healthy economy . It is possible that confidence will rise in the coming months. The case Shiller 20 city index suggested that the rate at which housing prices are falling has slowed. Meanwhile, employment has also started to fall more modestly and gasoline prices have stabilized. But confidence is unlikely to recover to the levels that were the norm before the recession. Households still need to reduce their debt to more manageable levels. That will be even harder to achieve if we are right in thinking that income growth will continue to slow in the coming months and years. Overall there is no doubt that confidence has recovered from the depths we saw earlier this year. But we have many issues still to contend with. For example, we still have not seen the inevitable effects of rising foreclosures in the prime real estate market still to come, over the next two or three years. Most of the refinancing and new purchase loans that were done in the real estate market in the years 2004, 2005, 2006 were five year adjustable rate mortgages that started with a teaser rate that would change dramatically at the end of five years. A significant portion of these prime borrowers could not afford their monthly payments under the adjusted rate of interest. This will inevitably spark a new round of foreclosures, but this time in the prime real estate market, which is significantly larger than the sub-prime market. It would be difficult for the government or so-called financial experts (cheerleaders) often seen on television to talk up confidence in what is clearly bad news. Today the S&P 500 completed the right shoulder of the classic head and shoulders formation with the bearish bias. We are looking at a perfect storm of both fundamental and technical data points that point to a correction in the markets, that could accelerate to the downside on any given day. This bias to the downside began in the first week of June, but it has been slow to materialize and follow through. Time will tell. Tell me what you think?