The Golden Investor fears that the current situation isn’t sustainable for longer than one quarter and eventually we’ll face a hybrid global quarantine in which younger healthy people will have to keep the economic engine rolling. One thing is certain, people will have to be fed one way or another. First signals of empty shelves where reported in Hong-Kong and Singapore this week. This time it’s not fault of bulk buying costumers but of supply chain drought in some sectors. Since these countries are fully dependent on food imports out of respectably China and Malaysia, these are the first countries to notice disruptions in the system. Many people forget that food supply chains are extremely developed these days. Minor disruptions aren’t a problem, but a major drop in workforce and economic activity can cause huge efficiency losses which will lead to a less spread in distribution of food. Farmers will see the biggest drop in demand this century, food processors and manufacturers will lower their production capacity which will cause short to mid term disruptions in distribution.
“In 1979, Walmart made $1 billion annual sales. In 1993, it accumulated $1 billion sales every week. In 2001, it started to make $1 billion in sales every day.”Matusitz and Minei (2011)
In these circumstances the market power over supply chains, and mainly the food supply chains will prove essential for big retailers like Walmart (WMT), but also Dollar Tree (DLTR) as a budget retailer will prove a good safe investment in these uncertain times. Walmart isn’t the most ethical investment: low wages for employees, monopolistic pressure on manufacturers, anti-union policies are all part of the bulldozer business plan by Walmart to create a plain road to high growth and expansion. However this policy has led to monopolistic power for Walmart to maneuver through major crises. During current times of possible supply chain drought Walmart can have the ability to maintain supply on healthy levels and obviously won’t face a big decrease in demand due to the human necessity of nutrition.
This business plan of unlimited expansion seems to be the criterion for all big companies these days, just look at Amazon (AMZN), McDonalds (MCD) and Coca Cola (KO), in its own way all too big to fail. The current investing environment focuses on venture capital to create companies with endless capital and the ability to attain and take over the market burning through cash. This race for monopolistic power over the (global) economy isn’t sustainable, destructive for the economy and leading to increasing differences between capital and non-capital holders. During the corona companies many of these companies will face the problem of the inability in attaining this growth. Many companies which are on this path, but aren’t there yet will face the consequences of having business plan which solely focuses on extremely high growth and will be hard hit by the economic burden of not attaining this growth. All this tunnel vision on growing in order to be too big to fail is all based on a debt-driven monetary system which in itself isn’t sustainable in the long run if it’s not clearly defined and limited. This fallacy will show to be a vicious circle, the FED buying up junk bonds will only make the drop harder.
The Golden Investor isn’t a big fan of the business plan and monopolistic behaviour by Walmart, but neglecting this unethical side of the company, which is more rule than exception these days, Walmart will prove a good safe haven. The Golden Investor remains skeptical on the FED’s QE pumping of the financial system which inevitably will lead to a bigger problem: the end of fiat money. Last week the FED initiated a second 2,3 trillion dollar printing session on top of the 2 trillion dollar mega package of earlier. This time they will buy-up junk bonds in order to fund the small and medium sized companies, although the first signs of inability for these firms to acquire these funds has been reported. In the mean time the price of gold is starting to make its run past all-time highs. It’s not a question if, but when gold prices will pass the mentally important 2000 dollar mark.
Disclaimer: The writer of this article doesn’t hold Walmart (WMT) stock, this article should not be interpreted as investment advice or anything like that.
1) Matusitz, J., & Minei, E. (2011). Cultural Adaptation of an MNC in Mexico: A Success Story. Transition Studies Review, 18(2), 418–429.