One of the key tenets of the bullish case for this market is the comment that “consumer spending is holding up.” I’ve heard that way too much lately. And I’ve not missed out on the hundreds of times that the permabulls downplay the concern by saying that the bears have written off the consumer for years and they have been wrong. Have they been wrong? Yes. But dismissing the argument based upon these past results is ignorant. I suspect that many permabulls cannot help but acknowledge the threats to continued consumer spending but somehow feel that they just don’t matter because the consumer keeps shopping. That poor logic will eventually be punished.

Let’s consider the prior bullish case for stocks which was based upon housing bubbles and cheap debt. Last year at this time, the permabulls laughed off the concerns about inflated housing prices and the dangerous mortgage situation. The same ignorant attitude applied back then when the response was that we had been wrong about the end to the housing boom for years. Were we wrong for years? Yes. Now? - not so much.

I feel the same way about this crazy idea that “consumer spending is going to hold up” because it did in the past. The consumer is in serious trouble from overspending and maxing out their credit cards this season is not part of a solution. Liquidity is a strange thing that is here one minute and can disappear the next. That happened with mortgages. That happened with LBO debt for Private Equity. That happened with commercial paper.  It can happen with consumers just as well.