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Leveraging the Worst Holiday Season in a Decade

Written By Brian Hicks

Posted November 23, 2011

The United States is invading Australia with 2,500 marines. And a couple of battleships. And B52 bombers. WD 112311 Ned Kelly

Hard-earned experience garnered over the past 50 years tells us that the Australians will hate us now. Expect a statement of demands from the “Ned Kelly Brigade” shortly.

That’s all I’ve got on Australia, and frankly, I stole that bit from Chris DeHaemer.

But I am desperate. I simply can’t stand to start another column with news about blowhard bankers in Europe…

The Turkey in the Room
Oh we’ll get back to Europe, Asia et al. eventually. These foreign economies are, after all, the elephant in the room.

But first, this word on the situation here at home — specifically, the inflation the U.S. Federal Reserve doesn’t see right now.

The bean counters at Agriculture are looking for food costs to climb some 5% this year and maybe 3% next year.

The American Farm Bureau is less sanguine and has announced Thursday’s holiday dinner will cost an American family 13% more this year.

Smoked Recovery for the Holidays?

Speaking of dinner, I know you’re in all in a hurry today to get out the door for your annual peregrination to Grandma’s place, or maybe you still need to clean up the guestroom before folks start to arrive…WD 112311 GDP

So I’ll walk you real quick through this snapshot of the “American Recovery.”

The first chart shows the “big increase” in GDP Washington has been throwing at us for a week now.

Problem is it nets out about 20% lower than initially claimed. Oh, and that’s not 2% growth in the last quarter, as claimed in most headlines.

These are, of course, annualized figures. Really, growth was a really thin +0.50%.

WD 112311 Crude Oil FuturesNext up, we have the 20.62% rise in crude oil futures over the past 12 months…

Two corollaries here:

1. This is a huge chunk of that GDP increase all by its lonesome.

2. This is America, where everything and everyone arrives to market on gasoline and diesel. This means that EVERYONE either has to raise prices accordingly, or lose margin. Period.

We are being told that new weekly unemployment claims are down or flat or something. Woo-hoo!

Here is the St. Louis Fed’s latest info on just how it takes to get a new job these days.

WD 112311 Unemployment Duration

This time last year, you could get back to work in some 34 weeks. Now it takes 39.5 weeks to land a paying gig.

That’s a bump of 16%, which begs the question: “Why would any boss pay anyone a raise when there are 20 guys lined up outside with their noses against the glass looking for their first job in the past year?”

WD 112311 Wages Paid


And the answer is: They aren’t.

Here is St. Louis’s chart showing the past 12 months’ 2.88% increase in wages paid:

WD 112311 Personal Income
And here we are at the end of this bumpy road, with a +0.24% annual increase in disposable income, i.e. the money folks have left to spend on the holidays this year.

Connect the Dots

Now let’s connect the dots:

  1. GDP is climbing by 2% a year.
  2. Oil is rising 20% a year.
  3. Food is up 13%.
  4. It takes forever to get a job.
  5. Wall Street recorded moderate profits last year, because no one outside the C-Suite got paid.
  6. Now no one has any damn money.

Right about now, you just might be thinking about signing up with the Ned Kelly Brigade, maybe rob a bank or two so as to prep for the holidays…

But seriously, put down that gun for a moment and think like a trader.
WD 112311 XLY
Legally Robbery

Okay, here’s one last chart for you.

It’s the Consumer Discretionary SPDR (NYSE: XLY), the ETF that bundles up all the various retail outfits waiting desperately for the cash most Americans just don’t have.

It is loaded to the gills with stacked sell signals:

  1. The long-term rising trend broke back in August…
  2. The short-term rising cycle rolled over in October…
  3. Momentum has gone negative…
  4. MACD fast average has crossed under the slow average…
  5. Volume is well below average…

A 4% drop would be a dream come true for major retail. More likely, we are looking at -20%.

I could go on, but it would just bore/depress you, and I’ve certainly done enough of that for one holiday weekend…

So here’s your handy trading tip: Buy mid-dated at-the-money XLY put options now.

With any luck, you should double your money by the time the holiday bills come due.
Good luck and good hunting,

Adam Lass
Editor, Wealth Daily