Is Luxury the new defensive stock?

So, I've been reading a book called, "Deluxe: How Luxury Lost it's Luster" and since our little recession, I've been thinking about that market. All you hear from the talking heads on CNBC or whatever, is that we are in a recession and consumer spending is going to fall off.

For those of you that don't know, a defensive stock is something that's returns are less (or negatively) correlated with the business cycle. The classic example is a necessity or consumer staple. So, CVS will probably do okay because people still need drug stores no matter what the economy is doing. Other companies, like Home Depot, will do poorly because no one will spend the money on rennovations and home improvements during a recession. This thinking is also applied to the luxury market. The assumption is the recession will make people hold on to their money (or they will spend less) because of uncertainty in the economy and job market.

Now, in the last 10-20 years, the super-rich have become fully entrenched. Think back to Goldman Sachs's crazy bonuses only 2 years ago, the rich are richer than they've ever been before. There are also more of the super-rich now than ever been before and those people do not alter their spending based on the economy. Ducati recently started producing new $15k+ motorcycles for this super-rich class and they are selling despite economic worries. The true luxury items will be unaffected by the economic cycle because the wealth of the super-rich is so great, their spending behavior is unaffected by a recession.

Now, where this may effect the luxury market is in the broader appeal items, like a LV bag or something. Luxury companies make most of their money off lipstick, perfume, bags, and scarves because these are the items the average consumer can buy to get, "a piece of the dream" as luxury industry insiders say. However, I don't think this will be as effected as most do. The demand for hot items from Louis, Coach, Dior, etc... is so high their demand may be more inelastic than say, new vinyl siding, or a new computer. As such, middle market consumers will buy these items because they want them so badly, they'll make it happen even in a recession.

Now this is just a theory, but perhaps it is a good idea to keep an eye on a luxury idex or LVMH, Prada Group, and Gucci Group in the market to see what happens. The Robb Report Global Luxury index is at 82.21 on 4/23/08 at 10:08 am. Let's see what happens through our recession. I'm betting it outpaces the Dow.