“Don’t bother coming to the US this week,” we told a colleague in Britain.

“Hanukkah begins on Tuesday. Thanksgiving is on Thursday. Then everyone goes shopping. The week will be a total loss from a business standpoint.”

But this is a big week for retail. It’s the start of the holiday season. Americans will “shop until they drop.” Or until they run out of money. Whichever comes first.

How is the season shaping up so far? Here’s a report from Bloomberg:

The holiday shopping season hasn’t even officially begun, yet pessimism is already prevailing: Some experts have predicted this year’s sales increase will be the worst since 2009, the year the recession officially ended. Major retailers such as Walmart and Best Buy are warning investors the current quarter will be soft. […]

Howard Davidowitz, a longtime retail analyst and chairman of Davidowitz & Associates, a consulting and banking firm, [says] the retail sector looks bleak.

“This economy is in trouble,” he says in an interview with The Daily Ticker. “The middle class is crushed. The only growth area in this economy is poverty.”

Davidowitz argues that the low-wage, part-time jobs that have been created in the US over the past few years have done little to boost economic growth and individuals’ personal welfare. Even the stores that cater to the middle- and lower-income classes – such as Walmart – are trimming profit forecasts because of a “challenging” retail environment.

Not all consumers are struggling – Davidowitz says Americans in the top 10% income bracket will be busy spending their money next month. Luxury retailers such as Tiffany and Michael Kors will be two of the big winners this holiday season.

“If I’m upscale, I’m a happy camper,” says Davidowitz. “The top end will do great.”

Officers’ Insignias in the Consumer Army

Top end? Bottom end? What’s the difference? At the top end, you can buy more stuff. But that doesn’t mean you’re a happy camper.

Remember, money itself is worthless. After the bare minimum you need to keep yourself alive, the rest is “positional.” It just tells you where you stand compared to others. More money means you can get more stuff than other people can.

“And you can get more expensive stuff,” wife Elizabeth adds. “They are now selling sweaters for $2,000. And women’s handbags sell for as much as $10,000.”

“Positional goods,” economists call them. Like a Rolex or a Patek Philippe watch, they are like officers’ insignias in the consumer army. The $2,000 sweater doesn’t keep you any warmer, but it puts you among the generals rather than with the privates.

“I live in Aspen, Colorado,” said a psychologist friend we work with at our family wealth investment advisory, Bonner & Partners Family Office.

“Nothing but rich people there. But guess what? They’re miserable.

“The women all have the same strange look – like some kind of robotic females – because they all have the same plastic surgeon. The men are all so busy with their careers – earning money – that we see them only on weekends and holidays. Most of them are on their second or third marriages. And the children are a mess.

“These people have everything you could want. Palatial homes. Their own private jets. The latest gadgets. The latest fashions. But all that stuff just seems to get in the way.

“One kid I know only saw his mother after he got home from school. The parents had an au pair get him ready in the morning and take him to school. Then someone would pick him up from school and he would see his mother, but just for a few minutes, because she’s a busy executive, too. Then they call me in because the kid is having trouble …

“I just say, ‘Well, duh!’

“The suicide rate in Aspen is four times the national average. Figure that out. Everyone wants to get rich. Then they move to Aspen and they’re so miserable they want to blow their brains out.”

Smart Money… Dumb Money

Smart money. Dumb money. Rich. Poor. Everyone buys stuff he doesn’t need… often with money he doesn’t have. And he thinks it will make him happy.

Then one delusion feeds off another one. The feds see the higher sales numbers… they see the retail clerks bagging packages… the credit cards sweeping through the card readers… and the automobiles backing up at mall entrances.

“Hey,” they tell us, “it’s a consumer economy. People are consuming. GDP is growing. That’ll make people happy.”

Economists act like a person at the Thanksgiving table:

“Go ahead! Have another piece of pumpkin pie. You can put away another slice. And put some whipped cream on it.”

“Thanks a lot. Just what I needed.”

Just because you can doesn’t mean you should.

Not that we have anything against consumerism. It’s just as good as any other kind of “ism,” as far as we’re concerned. But are people really happier when they spend money? Are they happier when the GDP goes up? Are they happier when they have more stuff?

Answer: not necessarily.

Regards,

Bill

Market Insight:

Seven Straight Weeks of Gains
for the S&P 500

From the desk of Chris Hunter, Editor-in-Chief, Bonner & Partners

The real economy may be struggling… but the financial economy has the pedal to the metal.

Despite post-Fed meeting minutes last week that were widely taken to hint that the Fed may “taper” sooner than expected, the S&P 500 still ended higher for the week.

That’s seven straight weeks of gains for the index. Going all the way back to 1980, the S&P 500 has had only 10 streaks of seven or more up weeks.

And as you can see from the chart above, which goes back to the start of year, the long-term uptrend of the S&P 500 is very much intact.

So far this year, the index has tested support at its 50-day moving average – which tracks medium-term price momentum – five times.

Twice, it has bounced off the 50-day MA. And after the three times it has dipped below the 50-day MA – in June, August and October – it has soon recovered and continued its uptrend.

From a valuation perspective, we believe the S&P 500 will disappoint over the long term. Our favorite valuation measure, the Shiller P/E (which uses average inflation-adjusted earnings from the previous 10 years to smooth out “noise” in earnings), is currently 54% above its historic average.

But from a purely technical perspective, this rally shows no sign of flagging.