Institutional Lethargy, Market Distortions and the Age of Change

May 20th, 2014
in Op Ed, syndication

Written by

Editor's note: This article starts with a few market comments but is mostly about the way our world has changed and is changing.

Institutional lethargy. That appears to be the state of the stock markets now. The VIX "fear/complacency Index" is about as low as it has been for many weeks; so traders are sitting on their hands in a somnolent state. The stock markets do appear to have peaked and turned down, but there is little fear of a selloff, while at the same time there is a reservoir of hope that the markets will turn up again, even explosively by some accounts (which I think is erroneous).

Modern-day awareness

Follow up:

I believe that the markets are executing upside corrective countertrend bounces that are unlikely to lead to new Highs. The tops of the bounces (partial retracements) should arrive within the next several days, to be followed by declines well below recent Lows. MarketPeek Subscribers will be advised when peaks and reversals in the stock Indexes seem to be imminent or in progress.

The existing-housing market has been distorted by the concerted buying programs which have been initiated by several of the large hedge funds - nationally, in many of the medium to large metropolitan markets, and certainly here in Tampa Bay. As mentioned earlier, I wonder whether the funds have bitten off more than they can chew. The concept underlying their programs has been to rent out existing homes which they've picked up as "distressed" merchandise. One such particular home, not very far from mine, is one of those homes. There has been a "For Rent" sign on it for many months now, interrupted for a short time but now back again. My suspicion is that the fund paid more for this particular house than may be the norm, even though it may have been purchased on a "distress sale" (which I do not know) and the resultant asking rent is "above the market." I personally know of another home not too far away, a bigger house in what arguably is in a "higher rent district," which has not rented. While these examples may be only "anecdotal evidence," one wonders whether local rental price levels are reaching a "point of refusal."

Here's another anecdote: This has to do with the "wedding business." A lady whom I know well provides hand-made calligraphy for wedding invitations and the like. In recent past years, business has been booming for her in April and May. This year: there's almost nothing. Are there fewer weddings planned for June this year? Are young people postponing marriage because of economics? Or are they just "trading down?" Whatever it is, there is something very different in the wedding invitation business this year. One wonders whether this little bit of anecdotal evidence is telling us of something much bigger. I wonder how bookings at wedding reception venues are doing. Do you know? If you have any information about that, I'd appreciate it if you'd tell me. It would be an interesting bit of data. Please tell me of any shrinking-business anecdotes that you may know of. Auto repair shops, beauty parlors, nail parlors, pizza parlors, dentists, restaurants, other service-type operations, retail stores, whatever. Thanks!

While it may be true that prices are down on the "producer price level" (although they were up the last couple of months) and that deflation is on the way (as I believe it is), on the personal-experience level you or your wife know that prices at the supermarket aren't getting any cheaper. Beef, of course, is very expensive; and we understand that the drought and the consequent culling of herds may have something to do with that. The newspaper this morning carried a story about "shrinking cereal boxes." The posted price may be the same as it was, or perhaps a little higher; but the volume of contents of the package has shrunk. This does not stop at cereals. It seems endemic, across the board, from Bounty paper goods across almost all household goods and packaged foods. It's a stealthy thing. The manufacturer doesn't tell you that his package marked "New and Improved" is mostly "new and improved" for him, not for us.

Are you old enough to remember this jingle?

"Pepsi-Cola hits the spot;
12 full ounces, that's a lot;
twice as much for a nickel, too;
Pepsi-Cola is the drink for you

Imagine that! A 12-ounce bottle of Pepsi for a nickel. Look what we pay today for bottled WATER! (Well, maybe you do; I won't and I don't).

In recessionary times, it is the restaurants that feel it early. They are like the "canary in the coal mine" in that respect. We see it happening: the fast food outlets are cutting back on help because of planned or actual minimum-wage levels; Darden Restaurants finally found a buyer for its Red Lobster chain after a six-month search, and its Olive Garden chain continues to inflict abdominal pain to Darden. The very high-end restaurants appear not to have been affected - at least, not yet. It's a cutthroat business at the low end and in the middle. We see that here in Tampa Bay, in the supermarket business. Publix has occupied the high end forever. Arguably, Albertson's and Sweetbay (formerly Kash N' Karry, a Belgian company which also owns other brands in the Eastern US) is in the middle, with Winn-Dixie at the low end. (SuperValu and now Aldi occupy the "hard discount" niche). Now, Albertson's is nearly all gone, and Sweetbay has been sold to Winn-Dixie. Publix parades on, successfully above the fray, offering a full- service customer experience at higher price points.

What happened to Albertson's and Sweetbay? In a word, Wal-Mart entered the market and happened to them.

We see consolidations happening all around us: Comcast wants Time Warner Cable; AT&T wants DirecTV; Verizon wants the part of Vodafone which it does not already own; hospitals and doctor-groups are forming even larger groups in order to spread costs across a wider base. You can readily call off the names of department stores and other retailers which have simply disappeared. Where are the legendary Federated Department Stores names - Rich's, Lazarus, Burdine's, Abraham & Straus, Shillito's, Filene's? Where are G. Fox, Jordan Marsh, Maas Brothers, Pomeroy's ? Where are The Emporium, Broadway-Hale, Donaldson's, Carson Pirie Scott, Robinson's? Even the name "Marshall Field & Co." is gone. "Macy's" and "Bloomingdale's" remain, and have expanded. What happened? Mostly, Federated gobbled up those of them which it did not already own - including Macy's - and then changed its name to "Macy's Inc." and embarked on a nationwide program to consolidate under only two labels: "Macy's" and "Bloomingdale's." The names "Dayton's" and "J. L. Hudson Company" are gone; they merged and ecame Dayton-Hudson Corporation, opened a discount chain on a trial basis ("Target") and is the rare - or only - department store company to have tried "discount" and succeeded with it, to the point where the whole company is now called "Target Corporation" and the department stores have been sold off! "Wanamaker's" died long ago; "Gimbels" more recently. Even the venerable Marshall Field & Co. succumbed to the Macy's Inc. call. The Field family asked for, and received, a remembrance - that the "Marshall Field & Co." plaques be allowed to remain in place on the main store in downtown Chicago.

People in positions of power and self-satisfaction sometimes say stupid things that turn out badly. I recall saying to a higher-up at the J.C. Penney Company that "there will come a day when Wal-Mart is bigger than the Penney Company." I was ridiculed on the spot. It is said that, in the early days when the first Japanese cars had begun coming into this country and had achieved a 2% market penetration, a GM Vice President remarked that "We'll give them their 2%." And then the Japanese showed the Koreans how to make cars!

The Age of Change is upon us. I think that a minor portion of it will be good; some of it will be neutral; but most of it will be bad, both because of actions of Government in chipping away at our freedoms and also because of its failure to act when it should.

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