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We have a very troubling consumer forecast for 2008. Let's run through the logic:

American consumers have an insatiable appetite to spend money... even when they don't have it. But as long as they have a house that is going up in value and a job that they can count on, they will spend.

Unfortunately, houses are going down in value and unemployment is rising. Stats show it has risen from 4.5% to 4.7% on paper, and that doesn't count people like my brother, his real estate partners, or even his agents.

We know the feeling of the "wealth effect" when our net worth is climbing, either in our 401ks, our real estate holding(s) or our career. But what happens in reverse? What happens when our homes are losing value and/or we can't tap any equity due to the lending crunch? What happens when our careers are suddenly thrown for a loop?

True, stocks are hitting all-time highs. But we're not as euphoric as we were in 1999... we're a lot more cautious as an investing public. (Plus, the other legs of the stool -- jobs, homes -- don't look that securely fastened.)

And now we have another problem: Oil. It's up to $87-$88 per barrel... a good 10% higher than post-Katrina/$4.00 gasoline in California. When more is spent at the pump, less can be spent at the strip malls. (Or even my wife's favorite spot... Nordstrom.)

Retail sales seem to be holding up so far. And I expect we'll tip-toe through the Christmas season, finding some way to buy electronics for our loved ones.

Yet I would stay away from consumer discretionary when 2008 rings in the New Year. That means you aren't going to want to hang onto the SPDR Select Consumer Discretionary (NYSEARCA:XLY) as we begin getting earnings reports in January 08.

In fact, the more aggressive investor might even look to profit from UltraShort Consumer Services ProShares (NYSEARCA:SCC). As I mentioned in a previous post, I might wait until a pickup in market volatility via the VIX Index, and I might wait for the 2008 initial earnings season. But the consumer's 3-legged stool (home, 401k, job) has the weight of a 480-pound gorilla sitting on it.

Keep in mind, however, there will be beneficiaries from the drop-off in consumer spending. You've got to like a Federal Reserve Chairman and a Treasury Secretary who are dedicated to saving the banks. And that means, the KRW Bank Index (NYSEARCA:KBE) will be in the driver's seat soon enough.