Thursday, May 28, 2009

Bookkeeping: Short Sherwin Williams (SHW) as Consumer Discretionary Reflects Oil Surge

Each dollar oil goes up, the more the consumer led "green shoot" recovery dies on the vine. If you believed it in the first place. All these consumer discretionary stocks are continuing to suffer... we've noted their weakness for a few weeks.

I asked about 3 weeks ago when does the conversation with higher bond yields turn from 'nascent signs of recovery' to 'uh oh'. That has happened in the past week. I now ask the same exact question for higher oil prices. We can giggle all we want as oil stocks rocket upward and market participants 'bank coin', but there are implications in the real economy. This whole recovery thesis is based on low interest rates and low energy prices so a debilitated consumer can go back to his high spending ways. That's how a country 70% dependent on shopping recovers.

Maybe we are headed back to the market of 1st half 2008 where everything suffered except commodities. Except this time the economy will be in far worse shape - if indeed these commodity prices are "correct" get ready for the 1970s redux folks... except without any wage bargaining power. We've been debating deflation v inflation --- maybe it's more precise than that; inflation in some places, deflation in others. Clearly hard assets are benefiting from paper printing across the globe.

I looked at any number of charts - there are many in the consumer discretionary space - I chose Sherwin Williams (SHW) because it broke below the 50 day moving average today and has a "gap" to fill. Black & Decker (BDK), Harley Davidson (HOG) and Royal Carribean (RCL) are also charts ready to fall over - I might enter them as well. I listed a handful of others I looked at below it...

I am shorting with a 3% stake around $52.50.

Other candidates of "green shoot" recovery....

please note that unlike a month ago when durable goods came in "better than expected" (only to be revised down 30 days later - i.e. today) Whirpool (WHR) did not skyrocket. p.s. notice how almost every government report is now revised downward 30 days later? i.e. give a pleasant number at first to get people excited than revise down 30 days later when no one notices... just a grassy knoll observation

Short Sherwin Williams in fund; no personal position

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