Mike Krieger On The "High End" Bubble

Tyler Durden's picture

The "High End" Bubble

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way - in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.

- The Opening Paragraph from Charles Dickens’, A Tale of Two Cities

Bubbles, Bubbles Everywhere…

Without the ability to identify bubbles I’d pretty much be useless in this business.  I live, breathe and eat macro news and trends.  It is what I am inherently good at and I leverage that talent to the best of my ability.  On the other hand put me in front of a financial model and I want to blow my brains out within 20 minutes.  I am not exaggerating.  I worked in equity research for five years.  I learned a lot actually and I am very lucky to have had the experience but it was like taking a fish out of the water, tossing it in the air and telling it to fly.  It just wasn’t natural.  I have always said that people screw up when they don’t figure out what they are naturally good at and then stick to that, but rather attempt to be a jack of all trades.  I make a living off of people that don’t get that.  I love it when people engage in my world when they have no business doing so, but the best types, the types that make people like me salivate are those that are ignorant of the macro world but also suffer from the deadly (to them) combination of large bank accounts and equally large egos.

So I haven’t written about many “bubbles” since 2008.  Back then I was at Bernstein and I was hardly capable of writing a word without  saying commodities were a bubble ready to crater.  I also hammered home the point of the “fert.coms,” which included POT and MOS.  The main reason I haven’t written about similar bubbles is because I have been 100% focused on what is likely the biggest bubble in the history of mankind.  The fiat U.S. dollar and all income streams related to it.  Of course, the inverse to this monumental bubble are gold and silver and the commodities necessary to everyday life (food and energy) and as such I have been wildly bullish on those particular items.  This is the most amazingly easy trade I have ever stumbled upon because it takes some serious macro thinking and a grasp of financial history to understand the precious metals markets.  These are two things Wall Street is not very good at.  Even better, Wall Street is full of ego maniacs with lots of money.  So all a lot of these clowns do is look at the price charts of gold and silver and the childish thought “bubble” pops into their clouded heads.  Of course it’s very tempting to just look at the charts and think this if you don’t understand what is really driving their ascent.  The popping of the largest bubble in human history.  The fiat, counterfeit, and immoral U.S. dollar standard. 

The "High End" Bubble

Anyway, gold, silver and the dollar are not the focal point of this email (amazingly).  The focal point of this email is what I believe to be the only other major bubble currently in place besides the dollar and that is this absurd view that the “high end” is some sort of great secular investment theme that will carry on forever due to rising incomes in the emerging markets and the bifurcation between haves and have-nots in the West.  Like any other bubble, it begins with a real macro trend; a real and powerful story.  Then at some point the thing gets stretched beyond its ability to continue and then finally you get to a point where investors confidently extrapolate the trend forever into the future just at the time the trend itself becomes unsustainable.  With regard to “high end” I believe we are there now and I think this entire theme will implode on itself in the not too distant future and there are two main reasons why I think this.

First, we all know about the bifurcation in the haves and have-nots in the West.  The funny thing is that when you hear Wall Street talking heads speak to this they act as if they just discovered electricity.  Sorry guys, this has been going on for decades.  The only thing that has happened is that the super, super rich (0.1% of the country) and their puppets in D.C. neglected to use their positions of power during the 2008 crisis to help their country and their fellow citizen get back on their feet and reform the system, but rather they decided to totally raid, abuse and pillage their fellow Americans in an act of unprecedented greed and recklessness.  What the “analysts” fail to see is that these “elites” have played their hand way too far.  The social crisis facing the country as a result of the most egregious plundering in modern American history will spell the end of the “high end” theme.  Buying into this trend now is like getting long Marie Antoinette’s unsevered head in 1792.             


Moreover, in the BRICS (China in particular) this bifurcation has also exploded in recent years and with inflation spiraling higher we have a cauldron for social unrest and revolution.  The haves have already taken everything from the have-nots.  When that happens you don’t buy high end retail stocks, you get long guillotines (to be clear I do not condone violence WHATSOEVER, I am merely calling the situation as I see it).  Just read this article from Bloomberg this morning to get an idea of how close we are to a total social implosion.  http://www.bloomberg.com/news/2011-07-21/consumers-in-u-s-relying-on-credit-as-inflation-erodes-incomes.html.  Key quote from the article: “Consumers, particularly in the lower-income end, are being forced to use their credit cards for everyday spending like gas and food, said Tavares, who’s based in Atlanta. That’s because there’s been no other positive catalyst, like an increase in wages, to offset higher prices. It’s a cash-flow problem.” and… “The swings in purchases of fuel and food have been “dramatic,” Tavares said. The volume of gasoline purchases placed on credit cards jumped 39 percent last month from a year earlier, compared with a 21 percent increase in June 2010, he said. Food shopping increased 5 percent after falling 7 percent last year.” Serfs up!     

The second reason I think this trend is set to be put to bed is that a lot of these companies are not really “high end” at all.  I mean look at some of the winners benefitting from this theme.  Take JWN (+23% ytd), RL (+27% ytd), COH (+20% ytd), TIF (+35% YTD), BRBY LN (+42% ytd), RMS FP (+50%) and AXP (+22% ytd).  I cannot think of a worse basket of stocks to buy right now.  The thing about these names is yes of course the super rich do shop there but that is not where the marginal dollar is coming from.  The marginal dollar is coming from the emerging market consumer that THINKS they are rich and making false extrapolations about their real wealth and future earnings potential just as so many Americans did earlier this decade when they felt wealthy due to the housing bubble.  Essentially the same trade in happening in China and elsewhere in the developing nations as we speak.  Furthermore, believe you me when the SHTF the super rich aren’t going to run into Coach and Ralph Lauren and support sales.  They will buy gold and real estate in a foreign country in anticipation of the guillotine (metaphorically speaking hopefully).  Have a great weekend! 

Peace and wisdom,
Mike 

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
JohnG's picture

WTF is wrong with you man?  Just another troll that should be ignored?

Ahmeexnal's picture

Trav7777's lily white world is collapsing.

JumpinJonnyK's picture

This is why I have been buying gold and silver for 3 years and still add to my holding.  I only buy the physical coins and bays.  Just an fyi for anyone looking to buy gold or silver use www.goldshark.com it's a cost comparison shopping site.  It will help you locate top dealers with the best price. 

I think I need to buy a gun's picture

we are within weeks of gold revaluation and the soverign debt crisis will be history

Calmyourself's picture

Years out pal,  the psychology of the masses manipulated perfectly by the paid for media will not allow it to happen..

DoChenRollingBearing's picture

@ I Think and Calm,

I have no way of knowing when gold will make its big move up, but my guess would be that it incrementally go up until we SNAP!

And then we get to FOFOA numbers.

I agree with Mike Krieger that the high end retailers are dangerous play for anyone but short term speculators.

ElvisDog's picture

Not sure what that means. Bottom line is that no country on earth, with the possible exception of Norway, can make good on all the promises they've made to their people. A reset/revaluation is coming but it won't be primarily in gold.

YHC-FTSE's picture

"we are within weeks of gold revaluation and the soverign debt crisis will be history"

 

You're kidding right? Equities will be hyperinflated before that revaluation tool is used. It may have worked in Roosevelt's era, but I can't imagine Americans obeying an order from the president to sell all their gold to the US treasury, besides, we live in a globalised era and the high end guys who have physical gold holdings in banks would have moved it where the IRS/Treasury can't touch them long ago. Revaluation without confiscation is also on the cards, but that is happening incrementally right now anyway, and it does not solve the debt crisis. 

http://www.321gold.com/editorials/thomson_s/thomson_s_011409.html

nope-1004's picture

Thanks Mike.  Love your work.  You bring passion and clarity.

 

waylon153's picture

In reply to the article:  Disappointed.  Not bad for an opinion piece but to make such a strong statement based on a Bloomberg article is a mistake.  I haven't been particularly impressed by Bloomberg recently and I'm finding it harder to find well researched information there.

"Just read this article from Bloomberg this morning to get an idea of how close we are to a total social implosion."  Really?  Bloomberg is now a leading source and indicator of total societal implosion topics?  Let's do some fact checking: 

1) Written by Anna-Louise Jackson and  Anthony Feld.  Can't find the author's bios on Bloomberg.  However, I did find over 8 articles they have written together.  Interns?  Part-time student journalists from Northwestern?  Who knows who they are, but they seem to be holding hands a lot.  Hard to believe Senior Financial Reporters need so much help....

2) The authors claim "Consumers in the U.S. are increasingly using credit cards to pay for basic necessities as income gains fail to keep pace with rising food and fuel prices." Really?  Because the June increases mentioned could easily be explained by summer vacations and expenditures away from home.  Gas is needed for families traveling by auto.  Also, how do credit card companies know that people are paying for gas or food?  Are itemized lists sent to billing or just the transaction amount?  Purchases made from grocery stores could easily be pharmaceutical or anything else.

3) I stopped reading (not really, but wish I had) when the authors cited data from the Federal Reserve.

4) "Changes within the industry may account for some of the recent stabilization in outstanding revolving credit as several banks have ended incentive programs for debit cards." Incentive programs for debit cards?  Never heard of those.  Ever.  Besides, several banks?  Which banks?  Two community credit unions in Walla Walla, Washington?  How large were these banks?  Large enough to spike data leading to "Consumers in the U.S. are increasingly using credit cards to pay for basic necessities as income gains fail to keep pace with rising food and fuel prices?"

Vlad Tepid's picture

He didn't make the statement of the article BASED on the Bloomberg piece...he made it from long experience in the macro trends world as he stated at the beginning of the article.  The Bloomberg piece was icing to give more flaovr to the overall trend he sees developing.  

Kali's picture

Waylon, sorry to tell you, number 2, that's a big YES!  Any transaction you make with a credit card or a debit card is "logged" somewhere, specificly stating what you bought.  If you get a receipt showing what you bought, so do they.  If you have a grocery store "club" card, they know exactly how much toilet paper and tampons you are buying.  Think about it, marketing research people sell this info about you all the time.  You think the gov doesn't have it somewhere?  Shit, even my credit union sends me an unsolicited "breakdown" of where I spend my money every month, would I like to meet with a financial planner to better manage my income?

In addition, a bank teller friend told me this, since 911, all banks/credit unions were required to digitize the deposits of checks.  Seems things got screwed up at the clearinghouses that got blown up along with the towers.  So, they also know exactly where any check you deposit in your account came from and where any check you write went to.

I am afraid you are woefully uninformed about how our money systems work and unless you pay or buy everything in cash, yes, they do know EXACTLY what you spent your money on.

IEVI's picture

If you think the Bloomberg article was written by interns, how about this from CNN.  

 

http://revolutionarypolitics.tv/video/viewVideo.php?video_id=15271

-Michelle-'s picture

Incentive programs for debit cards?  Never heard of those.  Ever.  Besides, several banks?  Which banks?

USAA is ending its debit rewards in September.

https://www.usaa.com/inet/ent_search/CpPrvtSearch?SearchPhrase=debit+rew...

A new federal law will significantly reduce the revenue banks receive from merchants when consumers pay with a debit card. USAA Bank has always returned the majority of this revenue to its members in the form of benefits, such as free checking, ATM fee refunds and debit rewards.

 

As a result of the law, USAA Bank will end its debit card rewards program Sept. 1. Unlike other banks responding to the new law, USAA Bank is not adding fees or eliminating the benefits that members value most, including free checking and ATM fee refunds.

https://www.usaa.com/inet/pages/about_usaa_corporate_overview_financial_...

As of March, 2011, ranked 66th in net worth among the Fortune 500 and 132nd for revenue, USAA has proven to be a financially strong organization. Without a cent of TARP money, our net worth, owned and managed assets, revenue, net income and membership all increased and continues to grow. Plus, member satisfaction remains consistently high at 97%.

mkix's picture

I just wanted to throw a thanks for Krieger's article.
I'm a designer working with marketing teams who are constantly force feeding us this "high end market" strategy stuff. It's complete nonsense!
It's market research that's like from unicorn valley! There's no way that 1% of a population can support all of these brands… it's a pyramid with no base, which is suppose to be emerging markets aka. China, and I think there is a "want" for it, but not any cash behind it. The 3 fake apple stores in the news today is a perfect example. It's a lot if crap to tackle in a blog post. Thank you mike.

trav7777's picture

Junked off again and I've got a 2nd one almost on the cusp of making it a twofer

THAT IS HOW YA DO IT, BITCHEZ.

Is Chumba watching?

Tyler, you need to raise my junk limit

mkix's picture

Tav! Let it go... Why are such a dick?... Lol
What do you have to say?!

trav7777's picture

got no time for blowhards who voted for Obama

JohnG's picture

Where did you get that idea, and just for the record I don't vote in sham "elections" anymore.....would NOT have voted for Debt Brother if I did.

GoinFawr's picture

Looks like a lot of people don't have time for you either Trash, though I doubt they give a crap how a bigot like you votes.

GoinFawr's picture

What is this: the cracker jack punk parade?

Tone down the "White Noise", "...turn up the colour, turn down the suck..."

Libertarians for Prosperity's picture

Trav7777 is one the the most epic disappointments in the short history of ZH. 

Incredibly smart guy who can't escape the clutches of his white-trash, misogynistic, KKK DNA.

 

trav7777's picture

ROTFL...not my fault if you're blind, moron

The "truth" you guys spout here is regarded as moonbat conspiracy bullshit, and you have the gall to be closedminded?

GoinFawr's picture

Heh, 'closeminded to regressive closeminded-ness', is that supposed to function like a double negative?

snowball777's picture

Hey, man, you gotta give Trav the freedom to let his fuck flag fly.

GoinFawr's picture

And I do. I just call him on the bosh.

Libertarians for Prosperity's picture

Closed Mindedness?

LOL

It's difficult to find a group of human sloths more close minded (and loathsome) than the KKK, and it would appear, given your obsessive racist and bigoted commentary, that you're either a proud member or looking to join.

Your various arguments that you puke up to support your white-power, superiority complex are utterly asinine.  Take for instance your claim a few months back that cranial radius is indicative of intelligence - fucking pure garbage! 

You're citing research from decades ago before advancements in neurosurgery allowed surgeons to remove significant portions of people's brain with virtually no lasting cognitive affects.  If we can remove 25%-40% of some one's brain with full recovery 12 months later, do you actually think a 2cm difference in cranial radius means anything? 

What about those people with Down Syndrome who have a much larger cranial radius?  Do they have better cognitive skills?

What about Einstein? Was his brain/cranium larger or more dense than normal?  No. The only notable difference was the number of glial cells.

For you to cite pathetic, half-ass, archaic, agenda-driven research from 40 or 100 years ago demonstrates the sort of idiocy one should expect from a KKK slug looking to justify his white-power insecurities.

However, even more pathetic than that, is your insistence in playing the powerless victim. You're always the victim, aren't you?  Women screw you over; Jews screw you over; blacks screw you over; bankers screw you; politicians screw you. You're the guy who blames everyone else for your own failures and misery, aren't you?  If only the world was all male, all white and government-less, you could just butt-fuck everyone in pure utopia, couldn't you? 

It's not the fault of women, or Jews, or blacks or minorities for whitey's struggles. It's his own damn fault. If you want to blame the blacks and minorities for being parasites on the system, why not blame the white, country-club Harvard politician who buys their votes with food stamps and social projects? Here, you blame the recepient, not the provider, because the recipient is black.  When convenient, though, you'll switch blame to the provider, as is the case with "Jew confetti". If you want to blame the Jews for usury, why not blame the entire planet for signing on the dotted line?  You switch blame from the hookers to the johns and back again when it suits your paradigm of bigotry. 

When a man constantly blames others for the environment in which he lives, I think it speaks more about the man than his environment. If whitey was so damn smart, why does he allow himself to get screwed all the time? Why has he allowed the world to treat him so unfairly?  When you blame everyone else as pervasively as you do and constantly play the victim card, you unwittingly reveal your (and whitey's) spinelessness. That, coupled with your obnoxious avatar and hostile, loathesome online persona, leads me to believe you're just another spineless "victim" struggling to understand why you're so irrelevant to this world and why your sphere of power erodes more and more.

You're a smart guy trav - you truly are.  But so is Kaczynski and a thousand other famous lunatics. 

   

GoinFawr's picture

I'd swear Trash is Dr.Lionel Jones in Kurt Vonnegut's "Mother Night"

trav7777's picture

wow...that was just a great screed man.

Too bad you have me confused with somebody else.  I'm not miserable nor a victim; I'm doing fine.  I'm not complaining every other fucking day or salivating for the end of the world to come RIGHT NOW please bc I have my canned ham and silver buried in the backyard.  That is y'all bitches.  And I blame YOU.

Urban Redneck's picture

Closed Mindedness?

It is almost impossible to find a group of human sloths more close minded than anyone in a position of power that benefits from the maintenance of the status quo.  The KKK bigots are actually legitimized by the closed minded actions of those in power who de-legitimize, as opposed to refute, their line of reason.  

Arthor Bearing's picture

People get really charged up about race, which should indicate that there are serious internal imbalances in the loudest most obnoxious people shouting on either side of the argument. In a completely different context Glenn Greenwald said "the ideas stigmatized with the most potent taboos are the ones that are most obviously true." Rather than bash Trav, which is becoming downright trendy on these comment boards, you guys should consider his ideas for what they are, and do so without getting your panties in a bunch or attacking him personally with dumb cliches ("white trash" "kkk" etc). This is how rational discourse happens, this is how ideas evolve and become sophisticated.

 

Confused's picture

Trav.....

 

....really? Thats what your comment is based on? You are better than that.

tmosley's picture

Clearly you haven't read many of his comments.  He is NOT better than that.

gmrpeabody's picture

At least he USED to be coherent.

GoinFawr's picture

I think Trash's noggin' went offline about the same time as the Fukishima nuclear plant, either that or when he added another '7' to his moniker.

Robot Traders Mom's picture

+1 from my son. He is in Juvie right now.

espirit's picture

Where have you been Mom? Junior is still able to access the internet on the break room Xbox as we speak.

Damn cutbacks in local support services, uh parole supervision.

trav7777's picture

yeah, Krieger's a dumbass

Milestones's picture

So as the correlary, you must be the smartass. Couldn't resist.     Milestones 

Al Gorerhythm's picture

So, Kriegar comes to the party with a theme to consider and you come with a scintillating "STFU" sign around your neck. Now, let's consider who's the dumb ass in this equation?

 

trav7777's picture

ok, let's.

 

All right, I have considered it and YOU are the dumbass...along with Krieger.  Throw Mort Zuckerman in there too

GoinFawr's picture

How about Mark Zuckerberg?

GoinFawr's picture

Hunh, doesn't say anything about that on his 'wall', you know this first hand 'job?

oddjob's picture

Who else other than a fag would want to create a site where everybody can come together and reveal personal information ?

GoinFawr's picture

Any one of the half billion Jabronis that have signed up for it?