Lituus (91.20)

Time to short US retailers

October 19, 2009 – Comments (0) | RELATED TICKERS: XRT

From the late1990's through 2008 there was a massive increase in debt taken on by US consumers which added roughly $2.8T of unsustainable funds to the economy.  Now at some point the savings rate must return to positive territory and the recent economic recession combined with high unemployment should drive a large-scale deleveraging among consumers.  The question is not if the correction will happen, but how rapidly this adjustment will take place.  

If consumers start to slow down their spending then it spells bad times ahead for retailers and yet retail stocks are up much more than the S&P500.  Specifically, S&P Retail Select (XRT) is up 101% since March and S&P500 up 62%.  These trends don't seem to add up so the play is to short retail ETFs and/or specific retailers.

Comments based on some very interesting charts from the Goldman Sachs Hedge Fund Trend Monitor

  http://4.bp.blogspot.com/_9MYixPWxtF0/SrcYVumE8rI/AAAAAAAAA5o/jDXLXVnAyk4/s1600-h/goldman-consumer-spending1.jpg 

  http://4.bp.blogspot.com/_9MYixPWxtF0/SrcYnpIwxII/AAAAAAAAA5w/kk_TjhNK-xQ/s1600-h/goldman-consumer-spending2.jpg