It’s easy to be negative about the consumer’s ability to continue spending like crazy amidst tough economic times and high unemployment. Consumer spending is part of the American DNA and will not die an easy death. I was bearish on the consumer for this holiday season until I saw this chart which changed my mind.
I think the retailers will be fine this Christmas. Here is why.
Mo Money
Take a look at the chart and tell me what you see. I see that disposable income has increased dramatically since last year, which means there will be plenty of presents under the tree this Christmas. Disposable income is defined as income minus taxes. Basically it is what is left over from your paycheck after you pay Uncle Sam. This is much more reliable as an indicator of future spending than other metrics such as stock prices or economic growth, although they are all linked in some ways.
The increasing health of the consumer is another reason why I think the Fed’s QEII program is misguided. The main purpose is to prop up stock prices so people will feel wealthier and spend. That sounds fine and dandy, but the unintended consequences will be disastrous in terms of inflation, the destruction of the dollar, and the anger felt around the world as their terms of trade with the United States become less attractive. There is no guarantee that QEII will make stocks go higher longer term but higher inflation is almost certain.
How to Profit?
I think retailers will have a better-than-expected season. The question is which ones do you buy? I wrote about Coach (COH) and Best Buy (BBY) in the past and I still like them a lot. Coach continues to go up, but I think it has further to run. Plenty of disposable income is music to Coach’s ears since their products are considered luxury. Best Buy should also have a gangbusters Christmas as well with so many electronics being popular these days. Look for the old 52-week high of $48.83 to be taken out in the near future. They have only the consumer to thank for that.
The Consumer’s Silver Lining is an article from: 
