Middle Class Retailers, Teens, Amazon and All-Carrot Diets
“As politicians and pundits in Washington continue to spar over whether economic inequality is in fact deepening, in corporate America there really is no debate at all. The post-recession reality is that the customer base for businesses that appeal to the middle class is shrinking as the top tier pulls even further away…In 2012, the top 5 percent of earners were responsible for 38 percent of domestic consumption, up from 28 percent in 1995…Since 2009, the year the recession ended, inflation-adjusted spending by this top echelon has risen 17 percent, compared with just 1 percent among the bottom 95 percent.” Also, teen apparel retailers are dealing with the same problem as Facebook: “When 19-year-old Tsarina Merrin thinks of a typical shopper at some of the national chains (American Eagle, Abercrombie & Fitch, Aeropostale etc.), she doesn’t think of herself, her friends or even contemporaries.” Reasons for this could be high teenage unemployment (“20.2 percent among 16-to 19-year-olds”), cheaper fashion trends, online shopping, shifting priorities among teens (e.g. an iPhone is more important than $150 jeans) etc. Meanwhile, Amazon stock is definitely overvalued (P/E ~ 600), but this is what investors are paying for: “revenues are likely high enough to push Amazon past discounter Target on the list of the top U.S. retailers ranked by revenue,” “Amazon has about 20-million Prime customers and the base is growing at 20-30% per year.” Finally, “like dieters vowing to trade cupcakes for carrots, a number of American shoppers are making a new pledge: cash only.” While extremely anecdotal, this article probably captures one of the attitudes floating around the American shopper’s mind these days; however, I think we all know what happens to the all-carrot diet once we get to mid-February.
Motif Investing and ETFs: Offering Sophistication To The Little Guy
Michael Steinhardt, “Wall Street’s Greatest Trader” (“from 1967 to 1995 his pioneering hedge fund returned an average of 24.5% annually to its investors, even after Steinhardt took 20% of the profits”), is back and “positioning himself as an advocate for the little guy” with WisdomTree Investments, a firm which specializes in ETFs. Steinhardt believes that “exchange-traded funds have similar disruptive potential (as hedge funds once did), with individual investors (and some savvy operators like him) reaping the benefits.” “With $35 billion under management, WisdomTree has only a 2.1% share of the $1.7 trillion (assets) ETF market, but that’s up from less than 1% in 2010, and it has been steadily chipping away at BlackRock and State Street, which have a combined 61.9% market share.” Meanwhile, rebalancing day for ETF firms like WisdomTree can make for easy money on Wall Street: “traders take note when big ETF managers like Good Harbor step into the market, moves that can affect prices. At times, they may try to profit by jumping ahead of Good Harbor, potentially chipping away at returns for its investors.” Also, check out Motif Investing, an online site “whose goal is to make it easier for small investors to do what more sophisticated investors have been doing — make investments based on themes or long-term trends.” For example, investors can put their money in The Seven Deadly Sins, a motif of alcohol, tobacco, fast food etc. stocks; or No Glass Ceiling, a collection of companies headed by women. Finally, “an unlikely alliance of investors, board members and advisers has formed in an effort to counter the disproportionate influence of activist hedge funds on corporate America.”
Emerging Markets: Debate Provides Opportunity
Reserve Bank of India Governor Raghuram Rajan said, last week, “International monetary cooperation has broken down” as the industrial countries take a strategy of “We’ll do what we have to do, the markets adjust and you (developing countries) can decide what you want to do.” The Peterson Institute is scolding Rajan for finger-pointing and ignoring the fact that “no country adopts policies that are not in its own self interest.” So there’s quite a lot of Us vs. Them going on in the financial blogging world in regards to the emerging markets crisis. Ultimately, here’s what matters to investors: “a return to currencies whose value is set by market forces, rather than heavy-handed intervention, could actually be a boon to emerging markets.” According to Rob Arnott, CEO of Research Affiliates, “emerging market stocks at current prices represent the best buying opportunity, anywhere, any time, in any asset class, since the mini-crash of 2011.” Moreover, The Telegraph proposes that “value” investors should focus on Russia, Hungary, Turkey, Austria, Italy, Brazil, South Korea, the Czech Republic and China. So now the question becomes “Why are they cheap?”