Canary, canary, no longer contrary?

For the first time in almost five years the S&P1000 US Specialty Retail Index (SPRETC Index) has fallen through the thin ice of its 200 Week moving average, at the same time piercing August lows, amidst negative earnings revisions and subsequent broker downgrades. This second canary flies on the lagged flightpath of Canary#1, the US S&P REIT Index (S15Real Index GPC), whose post EOP-sale pummeling should get Sam Zell the Bernard Baruch award of 2007. Both indices, look very, sick. These are the facts and they are undisputed.

But the Specialty Retail Index has a somewhat unique place in the liquidity complex, particularly in America. It reflects many things: trends in PCE, nationwide trends in targeted real estate expansion; pricing stability in sourcing cheap manufactured goods in China; cost trends in transport, labour and other SG&E costs, and expectations of how the present environment will impact all of these things in the future. A brief look at the charts of CHS, BEBE, RSH, AEO, SCSS, CWTR, ZUMZ, KSS, HIBB, etc etc. is instructive. Restaurants - cutting right across socioeconomic spectrum such as EAT, PNRA, PFCB, BWLD, CPKI, BOBE, TRY, CAKE, JBX etc. have already been cooked (no pun intended) by the market. Of course they can go lower, for at the moment they've only been discounting what might or, is only slightly, happening. Should labour costs run amok, commodity inflation continue, transport costs balloon, and demand fall as inflation hits into PCE, and earnings really take a hit, one can speculate upon what price be their ultimate destination.

My point, and this is respectfully addressed to MrMacro, whose unemotional Jerry McGuire approach to recession and trading positions I greatly admire, is that the market IS telling us something. Look carefully. The weak shorts (and even the more strongly convicted ones) in these things have long been squeezed out as any review of their post-2002 price-performance will attest, at great cost and much confoundment amongst portfolio managers of the more bearish and skeptical ilk. Even I was nine-months early trumpeting a short US Consumer posture last Xmas, according the MMs "Show Me The Money" the maxim, enduring two wrenching rallies before the arrival of belated gratification. I say this affectionately, for as I've stated, I highly respect that thick-skinned detachment. But just because he doesn't have the "Long The US Consumer" position, doesn't mean its not hurting someone, somewhere, convincing them, and showing them the money (or rather, showing its diminuation).

Note, this is NOT a recommendation to sell these names or sectors (though that may in fact still be a good idea). No. This is just adding market-based anecdotal evidence of what RGE and Goldilocks fairytale-skeptics have been harping on for a while: The recession is coming to a place near soon...