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November 25, 2005

The Real Turkey Day

Turkeys were on tables across our great nation yesterday, but they were all out shopping early this morning. That we have such a day to glorify consumers is quite a testament to how important consumers are to our economy. Consumer strength has become the bellwether to the strength of our economy, but in accepting this viewpoint, economists have put the cart before the horse. People have long ago forgotten that wealth is created through production, not consumption.

Consumer stocks were celebrating the new season, with the likes of Best Buy, Target, and Circuit City all sporting large gains today. There has been much talk about a consumer recession on the heels of the bursting housing bubbles. Although it seems that the housing bubble peaked this summer, any effects will take some time to reverberate through the economy. I believe consumer will spend well this season, and that next Christmas be quite weak. Many of these consumer stocks have built such a scenario into their prices recently, and it remains to be seen whether or not they overshot their marks. Personally, I am looking for near-term shorting opportunities, but such opportunities have not yet revealed themselves.

The market's action next week will be very important. As volume returns, we may get a read on whether or not the latest rally is nearing exhaustion. I am keeping a close eye on technical indicators and the dollar index. To reiterate my current viewpoint, the fact that the shinies have recently been rallying in conjunction with the dollar tells me that the year-long dollar rally is nearing its end, which in turn tells me that the awakening of Papa Bear may be at hand.

Disclosure: Long BBY Puts


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