Anecdotal evidence

Punters who have been around the block more than once or twice know that relying on anecdotal evidence can be fraught with peril. Taking an incomplete dataset and attempting to extrapolate a larger picture is a difficult skill; such forecasts can go badly awry, as the (now discredited) 19th century dinosaur sculptures in London's Crystal Palace attest. The figures to the left were paleontologists' best guess at what an iguanodon looked like in 1850, based on an incomplete fossil record. They look nothing like the modern conception of the beast.

Still, anecdotal evidence is not totally without utility. While the UK press is busy trumpeting that the economy is indeed well and truly buggered, Macro Man could have arrived at the same conclusion on the basis of some of his anecdotal observations. He went out to dinner on Saturday evening at his local French restaurant, which is a nice enough place and, depending on the quality and quantity of the wine consumed, can run anywhere from £40 to £120 per head.

While it's normally not terribly difficult to get a reservation with a few days' notice, the place is usually packed. Saturday night, however, the place was half empty....and most of those diners who were there appeared to be past retirement age. Moreover, the place cleared out unusually early; by 11 pm Macro Man's foursome were the only people left. Now, perhaps the mass exodus is reflective of the noise coming from Macro Man's table; then again, maybe it also reflects a perception that it's cheaper (and therefore better) to enjoy a whiskey at home rather than lingering over one final digestif.

More telling (and more irritating) is the proliferation of caffeine addicts who've taken to paying for their morning cup of Joe at Starbucks with a credit card. In the UK, Starbucks is set up as a primarily cash and carry business. At Macro Man's local 'bucks, it takes literally five minutes for the staff to process a credit card transaction; at they same time, they show a singular inability to process other customers' orders while waiting for the card transaction to go through. It's gotten to the point where Macro Man does an about face out of the store whenever he sees anyone in the queue with a credit card in their hand. Over the past few months, this has become an increasingly frequent occurrence. What does it say about the state of the UK consumer if they don't have the cash for a cup of bleeding coffee (no matter how overpriced)?

While the official retail sales data has been fairly erratic, the survey data (itself anecdotal!) has been unequivocally negative. The CBI Distributive Trade Survey has collapsed over the past few months to levels normally consistent with flat/negative real sales growth. This backs up Macro Man's anecdotal impressions and suggests that the domestically generated inflation pressures in the UK are dwindling fast, with the obvious exception of the supply-side "Rip Off Britain" energy sector. Sterling has been notably weak over the past few days; ultimately, however, it might take a capitulation from Swervin' Mervyn for the move to extend.

UPDATE: Ten minutes after publication, the August CBI survey was released, with a reading of -46: the worst since the survey began in 1983.

Elsewhere, there's an interesting article in today's Nikkei newspaper suggesting that the G7 had a plan in place to intervene on the dollar's behalf in the wake of the Bear Stearns collapse in March. Of course, the dollar stabilized on its own accord and has recently recouped all of its Q1 losses, at least as measured by the DXY.
Ultimately, however, it must be at least a tiny positive for the dollar that we have reached the point where policymakers are no longer willing to see it get clubbed willy-nilly. It's obviously no reason to buy dollars here and now, but does strengthen Macro Man's conviction that for this cycle at least, the bottom is in for the buck.