How Starbucks and Wal-Mart Predict Elections — and Economies
Starbucks tell you where Democratic voters live. Wal-Marts can be found among Republicans. But what do the two companies tell us about the economy?
No Starbucks in New Madrid, New Mexico, population 149.
The stock market was way up and way down, depending on the day last week. But it ended virtually unchanged. That was true for the Dow Industrials, which were up half a point, and for the S&P 500, which was down half a point. And it was true for the Yonder 40, the stock index of rural America. The index of 40 publicly traded companies that reflect the rural economy was up slightly after last week's wild swings.
In other words, the graph of the Yonder 40 versus the Dow and the S&P is little changed from last week. The Yonder 40 is still beating all the other major indexes since July 1 of last year.
The truth is, the 40 is doing less poorly than the others, being down only about 9.7 percent since July 1. The Dow is off by nearly 11 percent and the S&P is down 14 percent. There are no winners here.
So much for the bad news. Now some commentary from one of the Yonder 40's founders, former Wall Streeter John Borden. In Borden's always entertaining blog, EyesNotSold , he ponders the meaning of some maps published this past week in the Yonder. The maps showed the number of Wal-Marts and Starbucks per person in the lower 48 states. (See the maps here.) Wal-Mart is a stalwart of the Yonder 40.
There were more Wal-Marts in states voting Republican in the last presidential election. And there were more Starbucks per person in so-called "blue" states. This got Borden thinking about how the companies' "predictive powers look in this current economic environment." What Borden might be telling us is why the Yonder 40 seems to be holding on in this tough environment.
Starbucks is startling. Over the last twelve months Starbucks stock is down 41% while the S&P 500 is down 3%. So what, one could say, there have been lots of company specific reasons for this and their growth has stalled. What if, however, the primary reason for Starbucks' poor perfomance has been that with its high priced beverages it became an easy first luxury to go as the credit crunch began to evolve and consumer spending was diverted more and more to price inflating necessities like fuel and food? Is it possible that the reason for their poor performance was not overexpanding and diluting the culture, not introducing breakfast egg sandwiches that conflicted with that coffee aroma, not doing away with the manual espresso machines and going to the push button ones, not bad management, but just the fact that Starbucks, with its national ubiquity and premium prices, was on the cutting edge as a barometer of a recession in the making. Did Howard Schultz come out of retirement to tilt at windmills?
Walmart is a shorter term story and just the opposite. Over the last six months Walmart stock is up 18% while the S&P 500 is down 10%. So what, one could say, Lee Scott has addressed some serious issues aggressively and for the moment successfully. Could that, however, really account for a 28% outperformance relative to the S&P in just six months? What if Walmart, with its low price leadership, became the beneficiary of relatively more retail customer traffic as a result of the pinch that consumers were feeling by the end of the summer. At some point as consumers stretch their dollars, who cares if Target is more upmarket in its style and fashion or if "name brand" retailers were yesterday's preference. Did Walmart's revival come from management efforts or was it primarily an economic event, with its demographic telling us six months ago that the economy was seriously slowing? This may be a somewhat whimsical analysis done with the benefit of hindsight, but I still wish I'd thought of it earlier.
In other news affecting Yonder 40 companies:
“¢ Reflecting the turmoil in the biofuels markets, another company has delayed a plant proposed for Clovis, New Mexico. Dallas-based Renewable Fuels has had trouble raising money and rising feed costs have upped the cost of the animal fat the company planned to turn into biodiesel. So it's postponed construction. Recently a subsidiary of ConAgra also delayed an alternative fuel plant in Clovis, saying the market for ethanol market was too volatile.
“¢ Monsanto is offering incentives to Iowa farmers who will grow soy beans with less trans fatty linolenic acid than normal beans. The company will pay an extra 50 to 60 cents a bushel for these high-tech beans. McDonald's, KFC and Wendy's are demanding the trans-fat-free oil.
“¢Stage Stores reported a 20 percent drop in its fourth quarter net income in what it described as "tough economic conditions." No matter. Stage was up 12 percent this week.
This is how the full Yonder 40 did in the week ending March 14, 2008:
|Yonder 40||Ticker||Price March 14||Price Change 3/07 to 3/14||Percent Change 3/07 to 3/14|
|Burlington Northern Santa Fe Corp.||BNI||$90.80||$2.78||3.2%|
|Peabody Energy Corp.||BTU||$52.36||-$0.62||-1.2%|
|ConAgra Foods Inc.||CAG||$21.28||$0.03||0.1%|
|Cato Corp. Cl A||CTR||$15.77||$0.67||4.4%|
|Deere & Co.||DE||$82.88||-$0.34||-0.4%|
|Dean Foods Co.||DF||$19.62||-$1.12||-5.4%|
|Family Dollar Stores Inc.||FDO||$18.52||-$0.28||-1.5%|
|Fleetwood Enterprises Inc.||FLE||$4.32||$0.06||1.4%|
|Gaylord Entertainment Co.||GET||$27.18||-$1.86||-6.4%|
|International Speedway Corp.||ISCA||$38.95||-$0.71||-1.8%|
|Mohawk Industries Inc.||MHK||$69.14||-$0.61||-0.9%|
|Mine Safety Appliances Co.||MSA||$41.58||$1.40||3.5%|
|Plum Creek Timber REIT||PCL||$39.33||-$0.15||-0.4%|
|Penn Virginia Corp.||PVA||$41.92||$0.46||1.1%|
|Regions Financial Corp.||RF||$20.25||-$0.11||-0.5%|
|Sturm Ruger & Co.||RGR||$7.95||$0.03||0.4%|
|Stage Stores Inc.||SSI||$14.36||$1.63||12.8%|
|Tractor Supply Co.||TSCO||$36.72||$0.28||0.8%|
|Waddell & Reed Financial Inc.||WDR||$30.80||$1.10||3.7%|