Friday, December 19, 2014

Yow! Dow Drops — But Yonder 40 Drops More in Hard Week for Markets

07/27/2007

Yonder 40It wasn't a good week for any stock index. The Dow dropped over 500 points in the last two days, as investors were worried about credit risks. (That's what the financial press tells us. Oil prices were up, too. And maybe the market was just reacting to sunspots or the ring around the moon. Who really knows?)

For the record, the Yonder 40 fell 6.7 percent this week, dropping the 40 stock index of the rural economy below its beginning level of July 1. The Dow was down 4.2 percent in the week. The NASDAQ was down 4.7 percent and the Standard and Poor's 500 index was off 4.9 percent. All the indexes are below their levels of July 1. (See full results below.)

And all of the Yonder stocks were down for the week — except for two. Gunmaker Sturm Luger was up strongly again this week. Chaw-maker UST was up slightly. It was a good five days for guns and smokeless tobacco.

We can hope for something better next week. In the meantime, an interesting discussion has broken out about the meaning of the Yonder 40. Last week, the Rural Populist asked what the 40 really meant.

"When Wal-Mart is doing well, businesses up and down main street in rural communities are being driven out of business," RP wrote. "And when Wal-Mart is doing well money is being sucked out of rural communities, destined for the pockets of rich urbanites. When Smithfield is doing well, farmers aren't receiving a fair price for their livestock. And when Smithfield is doing well, family livestock producers are being put our of business. And so it goes for a number of the stocks in the Yonder 40. So, what does the Yonder 40 really tell us?"

One of the founders of the Yonder 40, former S&P managing director Jim Branscome, responded to the Populist:

"None of us may like it and would love a stock index that reflects the hard work of the small farmer and throws in the sweet smell of alfalfa drying in the windrow, but the reality of what really drives the rural American economy is Wal-Mart and the 39 other companies in the Yonder 40.

"We did take the Waltons down a few notches when we equal-weighted their $115 billion colossus in the Yonder 40 with the $4 billion Dean Foods that peddles butter and half and half, all made from real American milk. Or, at least, none of it from cows in China.

"We sorted through about 3000 stocks before we selected the sainted 40. It would have been nice had we come across investable public companies that represent farmer cooperatives, rural electric co-ops, or worker-owned coal mines and sawmills. There ain't none. No fan of the Daily Yonder may be comfortable with it, but the reality is that Thomas Jefferson's vision of America as a nation of farmers and toilers in the soil is as dead as our third president. Or at least that's what you find when you try to construct an index using SEC registered and stock exchange listed companies for rural America.

"Had we tried somehow to value the private companies that deal with rural America, impossible as that probably is, we would also have had to list Cargill and Koch Industries and the Chicago Board of Trade as well as the little bitty businesses that dot our small towns.

"Those of us who think about indices and derivatives and also love rural America would love to find some way so we could all go short the Farm Bill and all the presidential candidates who haven't even bothered for more than a few minutes to construct a rural policy platform. More work to be done!

"We're always open to suggestions of public companies that we may have overlooked. Given how fast mergers and acquisitions are taking place these days, we are going to need some good replacement candidates!"

Anyone else want to pipe up?

THE YONDER 40 JULY 22-27

Companies Ticker Price July 27 Price Change Percent Change
Alico Inc. ALCO 47.2 -7.85 -14.26%
Andersons Inc. ANDE 42.4 -4.15 -8.92%
Burlington Northern Santa Fe Corp. BNI 82.74 -7.62 -8.43%
Berkshire Hathaway Inc. Cl B BRKB 3,615.00 -27.5 -0.75%
Bassett Furniture Industries Inc. BSET 13.38 -0.66 -4.70%
Peabody Energy Corp. BTU 41.08 -5.13 -11.10%
Cabela's Inc. CAB 20.37 -1.16 -5.39%
ConAgra Foods Inc. CAG 25.74 -0.83 -3.12%
Cato Corp. Cl A CTR 21.19 -2.67 -11.19%
Citizens Communications Co. Series B CZN 14.36 -0.8 -5.28%
Deere & Co. DE 118.94 -10.13 -7.85%
Dean Foods Co. DF 29.51 -2.15 -6.79%
DIRECTV Group Inc. DTV 22.23 -1.87 -7.76%
Family Dollar Stores Inc. FDO 30.24 -4.28 -12.40%
Fleetwood Enterprises Inc. FLE 9.38 -1.32 -12.34%
FairPoint Communications Inc. FRP 15.82 -1.25 -7.32%
Gaylord Entertainment Co. GET 49.56 -5.1 -9.33%
Hormel Foods Corp. HRL 35 -1.4 -3.85%
International Speedway Corp. Cl A ISCA 48.16 -1.97 -3.93%
Lee Enterprises Inc. LEE 18.22 -0.32 -1.73%
Mohawk Industries Inc. MHK 92.57 -4.85 -4.98%
Monsanto Co. MON 63.45 -5.59 -8.10%
Mine Safety Appliances Co. MSA 41.14 -3.81 -8.48%
Southwest Bancorp Inc. OKSB 20.22 -1.04 -4.89%
Plum Creek Timber Co. Inc. REIT PCL 38.55 -3.87 -9.12%
Penn Virginia Corp. PVA 38 -3.29 -7.97%
Ralcorp Holdings Inc. RAH 51.54 -2.17 -4.04%
Regions Financial Corp. RF 30.28 -2.34 -7.17%
Sturm Ruger & Co. RGR 19.34 2.68 16.09%
Smithfield Foods Inc. SFD 31.34 -3.28 -9.47%
Skywest Inc. SKYW 22.08 -1.39 -5.92%
Southern Co. SO 33.79 -0.47 -1.37%
Stage Stores Inc. SSI 18.05 -2.66 -12.84%
Tractor Supply Co. TSCO 46.23 -3.29 -6.64%
Tyson Foods Inc. Cl A TSN 21.41 -2.26 -9.55%
UST Inc. UST 54.01 0.18 0.33%
Waddell & Reed Financial Inc. WDR 25.25 -2.34 -8.48%
Walter Industries Inc. WLT 25.6 -4.73 -15.60%
Wal-Mart Stores Inc. WMT 45.94 -2.12 -4.41%
Cimarex Energy Co. XEC 38.05 -3.15 -7.65%

Comments

As Wal-Mart Stock Rises, Rural America Falls

Thanks Jim for taking the time to respond to my initial comment about the Yonder 40. I've commented a second time, but at such length I made it a full blog post over at The Rural Populist. Here is an excerpt:

In outlining my objection, I will stick with Wal-Mart as an example. However, my objection is not about Wal-Mart per se, and the argument can be easily extended to Smithfield, Monsanto, or a number of the other companies that comprise the Yonder 40.

If you walk down Main Street in Lyons, Nebraska (population 960) where I live it doesn’t take long to start to understand the result of the Walmartization of rural America. A solid 50% of the buildings on Main Street are simply closed, boarded up or vacant. With a lack of economic activity on the street, even some remaining businesses are open sporadically at best. A few can still be counted on to be open every day, but of those, one often wonders how they manage to stay open and how many more years they will hang on for.

It hasn’t always been this way. But ever since Wal-Mart began their concerted campaign to infiltrate rural America, and stake their business model on gobbling up an ever-increasing share of rural retail activity, small businesses up and down Main Street in Lyons and small town streets like it across the country, have been shuttering their doors (pdf). Every time one does it means a loss of local jobs and local economic activity. These are losses that often have ripple effects throughout a community. Wal-Mart is most often located in a nearby mid-sized town, and even if one does drive to Wal-Mart to work, the jobs don’t pay what the local jobs did. To add insult to injury, Wal-Mart’s profits are wired to Arkansas at the close of business every day. With them goes the multiplier effect of money spent locally.

In short, this is to say, when Wal-Mart does well rural America does poorly. But let’s look at some numbers too.

From 1990 to 2000 Wal-Mart stock rose from an adjusted daily close of $6.45 per share to $53.31 per share. That is an 8-fold increase. Following the logic of the Yonder 40, this should be an indication of rising prospects for rural American during the same time period. But rural America did not fair quite so well during the 1990s.

Swept Away, a study done by Jon Bailey at the Center for Rural Affairs, reports that while per capita earnings for metropolitan counties in the states studied rose steadily between 1990 and 2000, rural farm and rural non-farm per capita earnings were essentially stagnant in real dollars. At the beginning of the decade, the average person in rural farm counties earned 58 cents for every dollar earned by the average person in a metropolitan county. But by 2000, the average rural farm county resident earned only 48 cents for every dollar earned by a metropolitan county resident. During the same time period, metropolitan counties also saw a job growth rate of 25%. Rural farm counties experienced job growth at a rate just 1/5 of metropolitan counties.

In the 10 year period in question Wal-Mart stock doubled, and then doubled, and then doubled again. However, for every year of that period, rural America slipped further and further behind the earnings and job growth of their fellow metropolitan residents. During this time period rural America also continued to loose population, watch the number of farmers decline, and watch the younger generation depart for the city.

So, there does not in fact seem to be a positive correlation between Wal-Mart’s stock price and the overall economic health of rural America.

 Read the full response here.

Just a Few Simple Observations

The Yonder 40 is an index, we said, to benchmark the rural economy. We didn't say buy all the stocks and ensure the prosperity of the Mississippi Delta or restore small businesses to the Rural Populist's hometown. We didn't say if the index went up, every person with callouses on their hands should shout with joy, nor if it went down that every caring person should weep for the poor farmer. It's an index for people with open eyes, open minds, and enough grasp of history to know that human beings have been vacating rural areas and moving to cities for nigh on 10,000 years now. Whether the index rise or falls will have no effect in determining where Sam Walton will spend eternity. It just measures what is, with Wal-Mart getting a mere one-fortieth of what other index creators generously grant it. This writer knows something about indexes, having spent a good portion of his career creating them and the exchange-traded funds that are now the rage for the Wall Street crowd. But I've also done my share of manure shoveling, milking cows by hand, castrating hogs, stacking hay with horses, thrashing wheat, hoeing corn, cutting and sacking cabbage, skinning rabbits, squirrels, and groundhogs for the cooking pot, trapping muskrats and raccoons and selling their hides, killing, butchering, and salting down hogs at Thanksgiving, starting farm machinery with a crank, and a whole host of other romantic rural activities, including parking with my girlfriends on deserted rural roads and watching the stars. As interesting as all these things are, and despite my fond memories of them, none of them proved to be economically viable at the scale on which I operated. And for the record, this was true even before Sam and Christy Walton had opened more than a handful of Walton's 5 and 10's down in the Ozarks. There's sure plenty about Wal-Mart to be upset about from the perspective of those who love rural America, but not every small business that Sam drove out of business was operated by a saint who acted only in the best interests of his customers. And while I'm not a political scientist, I have noticed that reformists who try to raise armies based on single issues like corporate giantism generally have about as much luck as I did with 63 Yorkshire pigs down in the Great Smokies trying to compete with with those farmers in Indiana with 5000. This too, I should point out, was at a time when Smithfield was buying hogs to make bacon instead of raising them to make bacon. As a journalist who covered the Appalachian south during the sixties and seventies, I also know something about populist movements, unionizing crusades, environmentalists, politicians, and regional agencies like the TVA bequeathed to us by the Senator George Norris's and David Lillienthal's, those wonderful Democratic progressives from Nebraska and Wisconsin who believed there could be nothing better for the small farmers of TN than three wise men on the TVA board who could build dams and nuclear plants wherever they wished and stripmine every hollow with a lump of coal, the people and their elected representatives be damned. Just one political aside for those who would capitalize on the misery of the poor and downtrodden to lead rural political movements. West Virginia is the nation's most unionized state, has one of the longest records of citizen action to right wrongs against the small farmer and the working man, has more pictures on the living room walls of FDR and JFK and John L. Lewis than any other state, and ranks in many socioeconomic measures with our nation's reservations. Guess who won the last two presidential elections in WVA? That's right, our current president, who managed somehow to get the good citizens there to vote against their own economic welfare in the name of Jesus, the right to bear arms, babies in the womb, and Osama bin Laden. Just one economic fact for the Rural Populist: Wal-Mart stock this century has underperformed not only the Dow Jones, the S&P 500, and the Wilshire 5000 but the discount retail sector of the S&P indices as well. Using the RP's logic, the last seven years should have been the bountiful ones for rural America. Whatever it takes policy wise to get things moving in the right direction for rural America, I seriously doubt that critiques of the Yonder 40, or defense of it as well, will amount to more than spitting on a forest fire. Ditto for making Sam Walton or any other leader of big business the AntiChrist of rural America. Let's start with what is, urge all the like-minded to join hands, hearts and minds, and trudge ahead with a vision more enduring than hoping some liberal Democrats, progressive Republicans or new rainbow coalitions will appear with the answers to our problems.