Michael Shulman

Trades to Keep You Ahead of the Recession

by Michael Shulman   12/04/08

Consumer Spending

I am looking hard data from the ChangeWave survey staff that shows that the consumer spending pullback will be deeper and last longer than the Street gurus are predicting.

The Wall Street guys see an upturn in consumer spending in mid-2009. This is based on their belief that we need to see consumer spending go up and that Obama is going to pass a $700 billion stimulus that will get the job done.

Psst ... wanna hear a secret you can only read in publicly available documents?

The retraction in consumer credit this year and next will be more than $5 trillion dollars.

That makes a $700 billion stimulus small change. And people with cash are taking that cash to repair personal balance sheets, not buy gold faucets or Blu-ray players.

Get ready to see another wave of retail bankruptcies in the first and second quarters of next year.

The Financials

The value guys are out on CNBC pounding the table saying that you'll never see the banks as cheap as they are now. Of course, by that measure, you could buy part of the Brooklyn Bridge right now real cheap -- New York needs the money.

The financials are broke and getting broker (pardon the pun).

Rumors put Goldman Sachs (GS) loss this past quarter at $2 billion.

One creative analysis that I like put Citigroup's (C) leverage at 280 to 1 -- assets to supporting capital. That means for every buck it really has, it has lent or bought 280 times more debt. Not a lot of room to maneuver even with you and me giving or guaranteeing Citi $324 billion.