Lost in last week's noise was the context of this critical chart. Consumer Price Inflation (CPI) for the month of April hit its lowest year-over-year level since 1955. Been shopping for a house or pair of oven mitts lately?
Does it matter? Don't ask your local short seller of everything consensus on the US Consumer - ask the stocks - they don't lie. Inclusive of today's +3.75% short squeeze remix of the Consumer Discretionary dance (XLY), this sector is up +6.5% for 2009 to-date. Being right on this sector (not being short) has made for big years for plenty a Research Edge subscriber. We salute you!
So should I fear my own crash call that I used to make on this sector, or should I smile? Days like today are a stiff reminder to the consensus crowd that their ideas are just that; and quantified by nosebleed levels of short interest. The New Reality is that our bearish catalyst on Consumer stocks for most of 2007-2008 now becomes a bullish one - it's called an "easy compare."
The end of 64 consecutive quarters of positive US Consumer Spending is now way back in the rear view mirror and, importantly, the negative "comps" associated with that positive spending streak going negative (Q3 and Q4 of 2008) is front and center on our macro screens.
What could spoil a recovery in nominal consumer spending? That's easy - and anyone not sleeping under a rock right now has the answer = INFLATION.
When does the macro short seller of everything consumer on 1970's style inflation get paid? Mostly in 1979, and maybe in 2010... but not right here and now in 2009. I am an avid short seller, and I assure you that I will be there when I think the time is right.
Looking at the chart below should give one a real sense of where the deflationary numbers really are for the US consumer as opposed to the rhetorical and consensus fears. These consumer prices, to the strong and the brave who wear the red, white, and blue (sans le leverage), are what we call Consumption Candy.
Keith R. McCullough
Chief Executive Officer