The Mild Depression: Downwardly Mobile Profits

John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The Elephant in the room is real — and won't go away. In the western world, the economy has been down since 2007, and, presently, the economic world is in depression. There, I said it. No one wants to use the "D" word, but I must because it's true. The truth is, the world is in a mild economic depression. The BRIC countries have been the exception, but even they are now part of the "downwarding" of the economic world. The unrest, the uneven unemployment (excruciatingly high for marginalized groups), the nonsensical piety and xenophobia, the gilded age socioeconomics, it all points to a "mild" version of the 1930s. We are in a mild depression, but you can capitalize on it.

Rich dad, poor son

A recent study by The Pew Charitable Trusts found that, although most Americans are making a bit more than their parents, only one-third of the current generation will surpass their parents in wealth and climb to a new rung on the economic ladder. In fact, according to the study, over 17% of Americans are downwardly mobile — they earn less than their parents and have less overall wealth than their parents. You can still make more money than your parents and fall downward on the income ladder. Jobless claims may fall, but only because of part-time workers, not real career-building. This is no longer a mere "recession." A recession is part of the modern business cycle; what we're in now is not cyclical, it's becoming endemic.

Pursuing the American Dream is an impossibility for many Americans. Most are simply treading water, barely holding serve. If you look, you see this reality all around you, and winners and losers in this new harsh reality. A great example of this are those Western Sky Financial ads. I love the ballsy candor of the Native American banker who flat out states, "Yes the money is expensive..." At least Western Sky Financial, unlike JPMorgan Chase or Wells Fargo, is upfront about the financial carnage they will inflict.

 

You down with GDP

You can Google "what is an economic depression," and find many definitions. In the "real" world, a depression consists of two things: a recession lasting two or more years, and a decline in real GDP exceeding 10%. Officially, we've been in a five-year recession. We are halfway to a lost decade, so we have assuredly met one threshold. Sadly, the GDP numbers have been shaky at best. But, GDP is just as misleading as BMI these days. Hollywood royalties will be added to U.S. GDP, boosting U.S. economic growth by as much as 3%. This kind of chicanery would make Western Sky bankers bristle.

Right now, our GDP stands at about $16 trillion a year. GDP was never designed to become a measure of the country's economic well-being, but since the mid-forties, that's what it is. GDP is our yardstick of how the U.S. economy is doing. It's our economic heartbeat. Our "gamed" GDP numbers are just a smokescreen that clumsily tries to hide a downwardly mobile GDP, chipped away by the subtle inflation of the dollar and zombie-like uneven growth. Reinhart and Rogoff arithmetic aside, while we don't "officially" have a 10% GDP decline, if we are honestly assessing this situation — most won't — our GDP needs a coronary bypass. Numbers don't lie, even if the Obama administration and software-challenged Ivy League academics try to make them.

All that bull about how the middle class failed to live within their means and save is just — bull. People spending too much at Costco, buying a house, or going on an extra vacation was never the issue. We all know this. Banks getting over, tax abatements to mega profitable corporations, privatization, etc., all created this current situation and continue to hinder the world economy. Sadly, all of this downwardly mobile activity, or "downwarding," has become the minutiae of American life, and it's not going away any time soon. Firms just charge more and more, while providing less and less — just like government. Microeconomic tenants like economies of scale are greedily ignored by companies, all seemingly devotees of Gekko — greed is good. So how can you make money on this painful trend?

Let them eat cake

Netflix (NASDAQ: NFLX) is a prime example of the downwardly mobile product or service. Netflix is great technology, with a forward thinking management team. Netflix is daring, creating groundbreaking original content. But, none of these things would matter if the mass majority of GenXers and Millennials weren't so downwardly mobile. Most people buy Netflix because they can't, or don't want to, pay their cable bill, period. In 2007, Netflix had seven million subscribers. Netflix has 28 million subscribers today. Nuff said.

Dollar General (NYSE: DG) has been the general store for the downwardly mobile. Where else can you pick up dog food, motor oil, and Klondike bars in one place, for rock bottom prices? Since 2009, Dollar General's stock price has more than doubled, going from $22 per share to $57.71. You won't see just Fords and Chevys in the parking lot, lots of Lexus SUVs and Avalons are parked, leaking fluids, while the newly downwardly mobile count change at the checkout line. One reason the downwardly mobile are shopping in Dollar General is food.

Food prices have gone through the roof. Most don't really notice this because most people in America don't cook. Do they even teach Home Economics anymore? Smaller container sizes and bigger dimples mean big profits. Bunge and Campbell Soup (NYSE: CPB) have been big beneficiaries of the new normal. As more people come to grips with the cost of eating, these two companies will continue to take advantage of this sad situation. Global agribusiness is big enough to take advantage of the Mild Depression. Bunge, as a holding company, has the technical skill, logistics, and legal protection to not only benefit from a lost decade, but to thrive. Campbell Soup is one of the few that can honestly say, "Been there, done that." It survived the Great Depression, so it's well poised to simply shake off the Mild Depression, and profit. A large can of Campbell's Vegetable soup in 1930 sold for $0.30. In 2009, that can of soup would set you back $1.19. Today, that can of soup costs $3.59. Forget meth, Walter White needs to cook vegetable soup for his family.

You don't have to be in agribusiness or a stodgy "soup" company to take advantage of this mini depression. Amazon.com (NASDAQ: AMZN) has thrived and will continue to play both sides of the economic coin. Those who have, buy, and buy, and buy. And, they buy using Amazon.com. Those who can't pay the light bill, sell, and sell, and sell. They sell what little they have left on eBay. Buy or sell, Amazon profits. Sadly, the older downwardly mobile have been trying to save, while trying to stay alive. Express Scripts has been the go-to service for those wanting to save money on their prescriptions. Express Scripts is so popular that CVS and Walgreens have closed many urban stores because customers have absconded and use Express Scripts exclusively. These are examples of how everything has changed — the evidence is everywhere.

If you can't beat em'...

You can, should, and must capitalize in this environment. Many have, and so can you. You can make money in this economic climate by embracing it or becoming a downwardly mobile casualty. Use the zeitgeist as your lever to gain a financial advantage. Invest in firms poised or positioned for revenue growth in this downwardly mobile environment. The Mild Depression is the 800 pound gorilla that should not be ignored or feared, it should be leveraged.


John Moore has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Netflix. The Motley Fool owns shares of Amazon.com and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus