Rocks, Paper, Scissor

The question investors need to ask (and answer) today is whether or not Euro contagion paper beats US consumer rock.

The constant denials from Euro governments like Ireland and Portugal about their need for IMF and EU assistance remind me a lot of when we were assured each day that “sub prime is contained”.  Greek denials were lies, Irish denials were lies, now we’re on the Iberian peninsula, where the stakes are even bigger, hearing the same things.  Based on the action in Spanish stocks this morning, no one believes anyone anymore.

In the meantime, the stats on this crucial shopping season are already rolling in and it looks to be a scorcher.  This is already well-known and some would say priced in, though to what degree I’m not so sure.  Year-to-date, the Luxury Goods stocks are up 43%, Specialty Retail just shy of 20% and even the Retail REITs are up 19%.

Retailers have rallied of late on the expectations of strength but also on the fact that private equity shops have raided the henhouse – almost anyone could be a target as hundreds of billions  in investment capital need to be deployed or returned.  Picture KKR or Blackstone giving investors their money back!  In the meantime, we’re already hearing that Thanksgiving Day sales were up 10% and the anecdotes from this coming weekend are expected to be broadly bullish.

European paper is a wreck this morning despite the fact that the US consumer is ready to rock.  Today looks like a strong dollar/weak stocks day as the Euro concerns win out.  Investors need to ask themselves which of these stories will drive things from Monday on when the traders return.

Some further reading…

Dollar Climbs to Seven-Week High Versus Yen on Korean Conflict; Euro Drops  (Bloomberg)

Thanks for the Turkey (Look Out Below)  (TBP)

Europe Shares Fall On Portugal Worry (NYT)