Wednesday, April 14, 2010

SPDR S&P Retail ETF (XRT) Approaching All Time Highs

Quite remarkable... as some stocks rally to reach pre Lehman Brothers levels, the broadest retail / consumer discretionary ETF - SPDR S&P Retail ETF (XRT) is now approaching all time highs.

(3 year chart - click to enlarge)

(4 month chart - click to enlarge)

This is a great ETF to track because unlike most "retailing" ETFs which are dominated by a few huge names such as Walmart (WMT) this one has broad exposure to many names with nothing dominating the ETF.

Top holdings
Company name% Net assets
Gamestop Corporation A1.79%
Jos A. Bank Clothiers1.78%
Expedia, Inc.1.75%
Walgreen Company1.71%
Monro Muffler/Brake, Inc.1.69%
CarMax, Inc.1.68%
Ann Taylor Stores Corporation1.68%, Inc.1.67%
Best Buy Co., Inc.1.66%
Abercrombie & Fitch Company A1.66%

Percentage of holdings  17.07%

I would submit, this is the other side of the strategic default stimulus sweeping the nation, especially as consumer credit has contracted for 12 of the last 13 months.

When the blog started in 2007, I posted blog post after blog post how the US consumer - 70% of whom live paycheck to paycheck regardless of income level - would be dead in the water without his house ATM (which was driving the US economy for 3-4 years) and how any consumer discretionary stock must be shorted - restaurants, retailers, Harley Davidson, Whole Food Markets, casinos, cruise operators, et al.  I tried to summarize many posts in [Apr 14, 2008: Stuff I've Been Negative on Since Fall 2007]

I cannot continue to stress enough how wrong analysts are on 2008 estimates and any company with focus on the US consumer is simply going to be blown apart in due time - if not this earnings season - then in the future. We are told daily how "cheap" these stocks are; this is based on the fictional body of work called "analysts 2008 estimates". Don't believe the hype. The subprime nation (us) is in trouble. Consumers make 70% of GDP. Its a consumption culture where the consumer is being drowned in negative wealth effect from housing, inflation from the Federal Reserve/global forces, and underemployment if not outright unemployment.

People were asking me for individual names for shorts - I continue to stress the same themes I've stated since last summer - anything consumer related or based on American conspicuousWe're heading into a long, drawn out recession. consumption - it will all go.  .. I've said it since last summer and as each month/week/quarter passes more denial will turn into acceptance and more earning cuts will have to happen across the board. The people in denial rely on government reports, which are for the most part another pile of fiction work.

Even as the S&P 500 went to all time highs in fall 2007, and I looked like a raving madman. I nailed that call once the [all knowing] market came to its senses (unfortunately the tracking system I used at the time would not allow for shorting of individual stocks so it was a victory in spirit more than performance).

However I am not so happy on the other side. I completely whiffed on using my own analysis on the benefits of strategic default on the way back up.  (certainly driving mortgage rates down and allowing many homeowners to refinance into 5% mortgages also helps)  Amazingly, these retail stocks are - in aggregate - back to where they were 3 years ago.. the old house ATM of mid decade has been replaced by the (a) new house ATM [Apr 13, 2010: One Out of Ten US US Mortgages is now Delinquent .... Which is Great for Consumer Spending] and (b) the government ATM [Jun 5, 2009: 1 in 6 Dollars of Income Now Via Government; Highest Since 1929]   Last week's disclosure that 47% of Americans received enough tax credits that they had to pay zero federal taxes (as the country chokes on debt) shows the Jun 2009 story is probably already obsolete... surely we have surpassed 1929 levels of government subsidy.

The nanny state nirvana has been achieved.

Summary:  Buy stocks, especially of the consumer related kind as the Fed and government are providing direct and indirect subsidies of all types to make sure the terrorists have not won and our consumption lifestyle is not threatened (i.e. shop til you drop)

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