Is It Time To Short The Consumer Discretionary Sector?

Friday's jobs report was terrible, and does not show signs of improving in the short term. We are, by all accounts, forming a permanent underclass of unemployed workers whose jobs have vanished and may never come back. With a more liberal government, the country might be able to stand up and support a ten percent unemployment number, particularly if we were on better financial footing. Extending unemployment payments is always an option, but has become politically unpopular at a time when even Democrats are considering paring back the budget. Yet, we live in a center-right country right now, and that means a world where millionaires get to keep their Bush-era tax cuts while we cut off funding for the poor. That plan couldn't possibly fail! In any case, the new reality is that nearly one in ten Americans who wants to work cannot find work. They are running out of unemployment benefits and with that, they are running out of financial options. Clearly there is a market moving story here. It was Henry Ford's observation that he could pay his workers a livable wage and they would then have the means to buy his cars. Today's data tells us we're moving in the opposite direction, as folks run out of the means to buy things. When food and work-transportation (gasoline prices) become difficult to afford, discretionary items have to be soon for the chopping block. We have seen a huge move in retail stocks during the latest rally. Can they possibly continue to move up when ten percent of the population cannot afford even basic discretionary goods? Maybe not. If not, there is a definite short play here on any number of retail stocks. Crocs CROX are the makers of those obnoxious "shoes" that look great on a toddler and look terrible on hefty women at Walmart WAL. Deckers Outdoor DECK also makes footwear, but geared toward the outdoor/camping/hiking types. Under Armour UA makes sporting and performance apparel, such as running or workout clothes. Nike NKE is one company you've probably heard of a few times. I can remember bugging my folks for more than one pair of these as a teenager. Tiffany's TIF Unless Newt Gingrich drops out of the presidential race and starts dropping 7-figures on jewelry again, TIF might be in for a bit of a decline.