Thursday, May 28, 2015

The Crock of @#$% Report v.009

May 28, 2015
Cramer's #1 best way to make money right now

1. In the end, these deals are all driven by a simple fact: there are too many companies fighting for customers, and those customers are finicky, tough and demanding.

2. Cramer sees this as a golden opportunity for investors.

If a small rural town is filled with finicky, tough and demanding customers, and that town has too many grocery stores, then over the long-term would it really be a golden opportunity for that town's grocery store investors?

Speaking as one who grew up in a small rural town with too many grocery stores, good luck on that theory. Our town tended to have either one or two grocery stores. The second one would always struggle then fail. Golden opportunity though! Newcomers kept coming!

I can't imagine a worse investment than moving to a small rural town and opening a grocery store half the size of the town's existing grocery store, and located just a few blocks from it. Even as a kid, it wasn't hard to see how that would end. I felt really bad for every small business owner who made the attempt.

Dead store walking.

11 comments:

Joseph Constable said...

The monopoly model is the best business model there is if you are an investor.

Stagflationary Mark said...

Joseph Constable,

Indeed!

An investor should want big moats and huge barriers to entry.

Using my life savings to open a restaurant would scare the #%^* out of me. All it takes to go from good to bad, is someone else using their life savings to open one right next to me. No barrier to entry. No moat. No monopoly.

Some of my favorite restaurant chains of the past are no longer here. It's a tough business.

One wonders how much ZIRP has inspired people to start new restaurants and if they truly understand the risks involved. As they say, there is no free lunch.

Rob Dawg said...

There is going to be tons of excess capital physical assets getting picked up for pennies as the original ZIRP induced owners fail. Think fracking for the rest of the economy. Best of all whomsoever picks the "stuff" up for pennies is going to have such a low cost basis that a deflationary spiral is the likely outcome as they undercut the existing markets.

Anonymous said...

It is interesting to watch. The smaller city I live in had 3 large chain stores and 1 discount store. Now Walmart has also moved into the market. There is no way in hell 4 large stores and the discount are going to all survive.

Stagflationary Mark said...

Rob Dawg,

Think fracking for the rest of the economy.

I have had that very thought, repeatedly.

Stagflationary Mark said...

Anonymous,

It is interesting. My tiny town example scales as one would expect to your small city example, for in some ways a small city is just a collection of tiny towns.

The risk of overcapacity does not go away just because a city gets bigger.

Let's say a city can support 100 restaurants and no more. Everything is fine at 100. Things go to hell in a hand basket if another appears though, for in theory, it could cause every restaurant to struggle. The city cannot support 101!

It won't be just one that fails more than likely. I'm picturing price wars. Further, most businesses don't fail when they run out of money. They fail when they run out of credit. And we know what that can do to an economy, if enough do it at the same time.

Anonymous said...

All this talk about small towns... BAH!!

The bucolic college town I live in can't open restaurants fast enough. Every month, there are more and more.

What every small town needs is young people spending their student loan debt on food bling. Now THAT'S prosperity, baby!

Stagflationary Mark said...

Anonymous,

What every small town needs is young people spending their student loan debt on food bling. Now THAT'S prosperity, baby!

That's one of the most terrifying quotes that I've ever read! It's got it all. A touch of reality, debt used to eat, and a dose of sarcasm for good measure.

The terrifying part is that I can almost picture it being said in a closed door political meeting as a potential solution to our long-term problems. Sigh.

Stagflationary Mark said...

Anonymous,

At the height of the housing bubble, I used to half-joke that once you drop $500k on a new house, what's the harm in dropping another $50k on a new luxury car to park in front of it? Assuming you got a zero down loan, it only boosts your total debt by 10%.

Easy rationalizations, baby. That's what I'm talking about! ;)

Joseph Constable said...

I see your bucolic college town and raise you mine - the San Francisco Peninsula. Last night my girl friend and I spent $100 on four drinks and one shared appetizer. We don't drink the crappy wine any longer because they pour 3 ounces and charge $16.

Stagflationary Mark said...

Joseph Constable,

For what it is worth, I don't think I've spent $100 in total at restaurants in 2015 so far. Once again, probably good that every consumer does not follow my lead. ;)

And for those curious, it was probably just two trips to Red Robin. I was with friends both times. My girlfriend was there for one of them, so in total that's three meals I paid for.