Quote from bgp:
STONED, DO MOST PEOPLE SHOP AT TIFFANIES ? MAYBE 3%.
IN THE REAL WORLD THE MIDDLE CLASS IS SPENT.
BGP
I've been blunt about this. Index wise, the American middle-class is a
non starter. The play there was long MCD and short SBUX. Lot more dollar menu stuff being moved than $5 Mocha Latte's. On to the next story. Global baby and Asia ain't even close to slowing down.
Asians are smart, hard working and commodity deprived. They're going to be eating at your dinner table and guzzling up on your gasoline. Hence John Deere's stock price.
While I'm obviously open to bullish arguments (heck I just made one) I'm presently and persistently short. These are my reasons.
1. The numero uno index in the world has made a multi-year double top. For what ever reason the mid 1550's in SPX have been resistance now twice in history. I suggest traders look at Dow charts from the mid 60's to 1982 and see how many times the Dow stopped around 1000. I am open though to NDX making a marginal new high. (2400-2500)
2. A relatively healthy correction in housing prices is a wild card crisis possibility. I see new job numbers trending lower, claims higher, a huge existing inventory of unsold homes, a credit market that's not interested in making loans to new buyers who would offer price support, large credit card debt and inflation in essentials eating into whatever elasticity that was left.
The New America is not long stock (outside of passive 401k) rather they're long a house. And it's as expensive as they can carry. Nothing wrong with that. EXCEPT if you need to be a seller. Mucho problemo because not only are you stiffing a bond holder but voila' the comp's now show half your neighborhood's upside down. Don't think for a second that some of this pumped garbage in Brownseville couldn't get shaved by 60%. It'll be the equivalent of 2000-2002 on the economy.
Housing prices trickle up. I could see it so clearly in Chicago. The Mexican immigrant bought the bungalow on the NW side from the Polish guy who moved to Park Ridge. The Park Ridge seller then could move up to Lake Forest. The empty nester LF guy was then able to buy a new condo downtown or one of those 1.5mil places in Naples or Scottsdale. That chain is breaking at the bottom. Everyone who's capable of being in is in and those who need out can't get lifted. It'll snowball.
3. While the woes of the "middle-class" have been thoroughly discounted by the market, I don't believe the emerging problems of older, wealthier American's have been yet priced in. Yes Stoney, in your NYC and my SoFla there's a glut of foreign luxury buyers. I'm not sure the Rolex salesman in Atlanta is enjoying the same benefits. The whammy of interest rates staying below real inflation means less spending from those who enjoy the most disposable income. I'm talking about the home on L.I., condo in Aventura set. They're the couple's eating at P.F. Chang's four nights a week and keeping Carnival in business. They consume 4x of the already tapped WMT shopper.
4. Stronger dollar and higher Treasury rates. The next move in the Dollar is higher. That'll choke some of those off shore buyers. And now that risk is trading at a
premium it'll allow treasuries to focus on inflation with a more restrictive monetary policy forward and less on flight to quality. Sticking a wide credit spread upon a higher benchmark Treasury rate will a disaster for stocks. You guy's are looking for good news to sell into? how about this one: Investors next year abandon low/no dividend growth and suck up 11% yielding financials. Goodbye GOOG hello C. As the banks improve traders will think they'll lead the market higher. It'll be a fade.
I'll discuss later but for now it's PERFECT beach weather!
