News, Analysis, and Research for the Retirement Planning Industry

A Brave New Consumer

In Uncategorized on 17 February 2011 at 5:21 pm

In the last 24 hours, I have read three very different views on what will drive future consumer spending and the resulting economic implications. In addition to whetting your appetite for the full story by providing an insightful summary, readers of this blog will also be privy to my proprietary investment ideas on how to profit should any of these views come to dominate the global economy.

The first two appear in the Spring issue of strategy+business.

The first view, espoused by John Gerzema, President of Brand Asset Consulting, and Michael D’Antonio, a Pulitzer Prize-winning journalist an author, is that conspicuous consumption is dead. In their article, “The Power of the Post-Recession Consumer”, they identified a “Spend Shift” movement characterized by greater thrift and an embrace of traditional virtues such as resourcefulness and self-sufficiency. Consumers are seeking out companies that are transparent in their business practices and reflect their values. In short, they seeking out “companies that care.”

Investment angle: Fair-trade, organic homemade bread machines.

A competing view put forth in the same issue by Timothy Devinney (professor of strategy at the University of Technology, Sydney), Pat Auger (associate professor and academic director of the executive MBA program at the Melbourne Business School), and Giana Eckhardt (associate professor of marking at Suffolk University in Boston), takes a much different view of the consumer.

They have found that while consumers say the value things like the environmental impact of the manufacturing process of the products they purchase or the working conditions of those who make them, what there are significant inconsistencies between what consumers say they purchase and what actually happens at the cash register. The authors suggest that the discrepancy arises because consumers preference for socially oriented products is only wins when other other factors (such as price) are equal. The authors suggest that since most people still value shoe color higher than the condition under which the shoe was made “the emergence of a true ethical consumer base is a long way from being a reality.:

Investment angle: Anything plastic, made in China, and sold at Wal-Mart.

Lastly, is an interview that appears in to today’s Wealth Report, a WSJ blog. Blogger Robert Frank interviews equity strategist Ajay Kapur, who, five years ago, introduced the idea of a “plutonomy” – an economy dominated by the spending and consumption of the wealthy (the “plutonomists”).

In the five years since he first articulated his Huxley-esque plutonomy theory, he believes “it has built upon itself and has deep roots.” What can we expect in a future based on the spending whims of the wealthy? A much more volatile economy, reflecting spending patterns of the wealthy which, Kapur states, are 10 times as volatile than that of the average consumer. Kapur says we can also look forward to higher budget deficits since the demands for entitlements by the masses who enjoy “representation without taxation” outstrip the tax-paying ability of the plutonomists.

Investment play: Profit from the class war by investing in home security providers, construction companies that specialize in “safe rooms” and personal protection device manufacturers.

Different expectations about the future is what allows markets to function. I’m not going to prognosticate, but I hope the Betas step it up a notch.


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