Bad for America

by Jim Collins, Outsider Club “What’s good for General Motors is good for America.” I thought of that famous quote mid-week when Wal-Mart issued a downwardly-revised forecast for fiscal 2016 sales. WMT shares were hammered, suffering their largest one-day decline in 15 years. So, can we surmise that what’s bad for Wal-Mart is bad for America? Yes, and it’s just another brick in the wall of worry that currently occupies my mind. Wal-Mart is a bellwether for the performance of the U.S. economy, and bad news out of Bentonville only strengthens my bearish convictions. Before we jump to conclusions based on a few headlines — I’ll let the folks on CNBC do that — let’s establish a few facts. Legendary General Motors CEO “Engine” Charlie Wilson never uttered the “good for GM/good for USA” line. In fact, his quote, from a transcripted meeting in January 1953, was: “I cannot conceive of one, because for years I thought what was good for our country was good for General Motors and vice versa. The difference did not exist. Our company is too big. It goes with the welfare of the country.” Mr. Wilson was in the process of a difficult confirmation as U.S. Secretary of Defense when he uttered those lines. He was a sensible choice for the position given that he was largely responsible for converting the incredibly efficient Alfred Sloan-era GM car production complex into a military production machine when the country needed it in the 1940s. Conflicts of interest were on the minds of Congressmen and Mr. Wilson’s large GM shareholding rankled some in Congress. Post-war America was grappling with the challenges of newfound prosperity, and Mr. Wilson’s wealth — through his ownership in a GM that he helped build — was also a point of contention with some Congressmen. Mr. Wilson was eventually confirmed as Secretary of Defense, although he was forced to sell his GM shares to gain confirmation. God forbid someone grows a business, employs people — GM was, in 1953, the U.S.’s largest private employer by a wide margin — and is rewarded for doing so. I hate that! But, as ridiculous as it may be, that thinking is once again rearing its ugly head in the U.S. In fact, one of the 2016 presidential candidates has actually called for a return to the 90% top individual tax rate that prevailed in the Eisenhower Era. (Virtually no one actually paid that rate in the 1950s, but that’s beside the point.) The War on the Wealthy isn’t good for America, but based on a decent amount of personal observations, wealthy Americans do not compose a meaningful portion of Wal-Mart’s clientele. I like Wal-Mart and shop there when I am in “The Real America,” but I live in New York City and the municipal government won’t let Wal-Mart open a store here. When I am in Wal-Mart I see hard-working folks who enjoy convenience and variety, but overwhelmingly want and need the chain’s low prices. So, the fact that Wal-Mart just cannot generate any meaningful sales growth tells me the the average American is not generating enough disposable income. Low wages have been the scourge of this “kinda-sorta-iffy” recovery and that hits people in the wallet. That also hits Wal-Mart, which many years ago passed GM as America’s largest private employer. As mentioned in the analyst meeting, Wal-Mart is going to slow its pace of store openings through 2017. So, even though it’s paying its existing employees more, Wal-Mart is likely to hire fewer employees going forward. It’s not just WMT. Dollar General announced Tuesday that a corporate restructuring would eliminate 255 jobs. It’s not just the price-conscious consumer, either, as Whole Foods announced 1,500 layoffs last week. Clearly people who wear Birkenstocks and clothing made from hemp are not spending as much as predicted, either, and the recent history at “Whole Paycheck” has included one disappointing quarter after another. So, price level-bias doesn’t hide the key fact: The U.S. consumer is just not doing as well as she should be. Given that consumer spending is frequently estimated to represent 70% of U.S. economic activity, that has to give the bulls pause. My favorite economic indicator, the Atlanta Fed GDPNow tool (learn to love “nowcasting” as much as I do by clicking this link), is showing the U.S. economy grew at a pathetic 0.9% pace in the third quarter. There is NO WAY that should be happening in a recovery that is approaching its seventh year. I’m not a politician and I don’t claim to have all the answers. I am an analyst, and I observe. I would never tell anyone to vote for Candidate X, Y, or Z, but when Wal-Mart stock craters as it did this past week, that should send a message to all Americans, inside the Beltway and beyond. So, what’s bad for Wal-Mart IS bad for America. The shares have been hammered, the Dow Jones went down with them, and wealth is being destroyed. None of that is bullish for stocks. As a famous public service announcement of Mr. Wilson’s time advised: bye-bye and buy bonds. Cheers, Jim Collins

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