Shorting disposable income
Trendy brands and teenage products go in and out of fashion in what seems like just a few months. Now the best investment may be against these brands, not because they are going out of style but instead a short against the disposable income of America. When parents are feeling the pain at the grocery and gas pump, its certain that teenage America will be feeling the same squeeze in disposable income.
What we had in our teenage years was largely disposable. Every dime went into expenditures on night’s out and the hottest clothes. But we’re in a new era, one that is made up of foreclosure signs rather than sales signs and the credit cards are starting to max out. The credit that one generation thrived upon will become the debt of another.
Brands like Abercrombie and Fitch which sells $50 tshirts and $150 jeans to teenagers may be one of the many companies that starts taking a hit from the limited income of teenage customers. It seems almost impossible to continue a business model formed around moderate luxury when your largest customers are those under 25 who receive all or most of their income from parents.
Not only are these stocks seeing a fundamental change but their share prices are near highs as well. While no one should expect a fallout similar to Crocs, which lost 86% of its value in just a few short months on weak sales of their synthetic shoes.
I do expect these stocks to outperform, that is only when shorted. Earnings growth from these companies does not come from new customers nor new markets, purely the growing income of their clientele. Now that the economy isn’t looking so hot- a short position should prove to be a good position.