U.S. Consumer Debt Weighs In On Retail ETFs

The dot com boom and the real estate bubble gave consumers confidence and a way to spend like it would never end.  The bubbles have burst and deleveraging is taking a toll on consumers.  We can no longer sell our Qualcomm stock for $500/share or swipe our ATM card through our home as many did for the last 10 years.  Where will consumer spending come from for the next ten years?

Approximately 30% of US household wealth was destroyed by the real estate collapse and the 2008 stock market crash.  Currently it stands at about $15 trillion, down 30% from $22 trillion at the 2007 peak.  With consumer household debt at approximately $13 trillion, this leaves us with $2 trillion in assets.  The debt burden is taking a toll on the consumer as home values continue to fall and banks cut their credit limits.  The consumer would rather save than spend as it deals with a lack of assets.

Markets have been pricing a recovery in consumer spending which accounts for 70% of GDP but, retail sales last month disappointed.  The commerce department reported today that retail sales fell 0.1 percent last month as economists had expected a gain of 0.7 percent.  All eyes will be on the fall retail spending as back to school shopping accounts for much of retail sales.  The SPDR S&P Retail (XRT) which comprises of approximately 60 stocks that follow the US retail market has enjoyed 50% gains since it’s November 2008 low.

Here is a list of the top 10 companies listed within the ETF below:

• CHICO’S F A S INC (CHS)
• COLLECTIVE BRANDS (PSS)
• Expedia, Inc. (EXPE)
• GAP INC (GPS)
• GUESS INC. (GES)
• Gymboree Corporation  (GYMB)
• J CREW GROUP INC. (JCG)
• PENNEY J C CO HOLDIN (JCP)
• LIMITED BRANDS INC (LTD)
• RADIOSHACK CORP (RSH)

Investors may looking to book some profits after today’s retail numbers, and the UltraShort Consumer Services ProShares (SCC) & UltraShort Consumer Goods ProShares (SZK) bet against the consumer.

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