Once more, I stress, the consumer discretionary area will be (and is) the next (current) financials. If you are not catering to the very low end (where the middle class are fleeing too) or the very very upper end (in which case you feel no pain from silly things like $4 gas) - you are in trouble - as the American middle class is gutted by inflation and inability to get wage gains that reflect "true" inflation. It will take time to play out since (a) we stole money from our grandchildren so Americans can 'spend, spend, spend' (rebate checks) and (b) people are borrowing against credit cards to stay afloat. That ends eventually as the limits are reached and/or the credit card payments overwhelm the budget. Then the personal bankruptcies begin in large numbers - that's going to be a 2009/2010 issue. But it's setting up for a great post-cleansing 2011.

This is the spiral we've been talking about for a long time - the exact opposite of the "credit expansion, spend over your heads, charge it on my house ATM" service economy the US has morphed into the past 10-15 years. Each service job relies on other service jobs - once the first jobs begin to be wiped out - all the the jobs that rely on those people to spend on services, begin to erode. It's a chain reaction. Many service industry jobs will be lost - we overbuilt our stores because people were spending over their heads. Right Starbucks? (Jul 2: Starbucks Tells Walmart - "Here you Take Them!") 12K Starbucks workers. 16-17K jobs here from Steve & Barry's. 75-125K Wall Street Jobs (just getting started). Auto workers here. Carpenters there. Airline workers to the right. Mortgage brokers to the left. 10-15K there. 3K here. 8K there. Eventually it adds up even if the government tell us a ton of jobs in "new businesses that are too young to show up in statistics" are popping up by the day. What a farce. You will see strip malls in many of the hardest hit states empty out (you would not believe what some parts of metro Detroit area - solid middle class neighborhoods - now look like in terms of strip malls - 5 out of 7 storefronts empty here, 4 out of 6 empty there - over and over and over. You drive around wondering who will be "missing" since the last time you drove past that spot). I've written throughout last summer and last fall that many of those small, one off (non chain), restaurants will simply disappear (killed by rising food costs on one side and killed by retrenching customers on the other side). Same for small service stores - the small businesses that make up 80% of American jobs - florists, dog groomers, nail technicians; all the non essentials. Where there were 3, there will be 1 left.

Unfortunately this is simply a very sad cleansing from a perfect storm of issues - I won't repeat them because we have talked about them ad nauseum since last summer. They are simply now coming home to roost all at once.