In a recent broadcast of Mad Money, Jim Cramer did an analysis of several retailers who cater to the affluent. One of these was Tiffany’s. Jim indicated that the company’s stock price, of course, was highly correlated with its sales and ultimately its profits. Further, he proposed that the performance of this upscale retailer is highly correlated with profits and performance of investments/financial organizations. In English this means that when Wall Street types get big bonuses they spend heavily on the products offered by Tiffany’s.
My own data suggest that marketers of investment products and services are more likely to be of the income statement variety than of the balance sheet type. When incomes are high among these marketers you are likely to find a series of newspaper articles which detail prolific consumpation habits of these marketers. Conversely, when payouts are reduced, upscale retailers worry about their future. In a recent New York Times article, Kevin Roose stated that:
. . . securities firms in New York made . . . $13.5 billion in 2011 down sharply from $27.6 billion in 2010. . . . . . . feeling the pinch of lower Wall Street pay . . . luxury goods stores . . . in New York stand to suffer.
Ah, the income statement affluent. When they encounter a significant upswing in income they are inclined to go into hyperconsumption mode. Contrast the Wall Street affluent with a different segment. Recently, farmers in this country encountered a major upswing in their incomes.
. . . net income for U.S. farmers was a record $98.1 billion in 2011 up 24% over the prior year.
What impact will this have on Tiffany’s sales? You know the answer. Most farmers are balance sheet archtypes. They tend to allocate windfall profits to capital improvements and quality stocks and bonds rather than to trophies of diamonds and silver. New silos and tractors are the status symbols in farm country. There is a:
. . . tight relationship between its [John Deere’s] stock and corn’s price per bushel. . . . When farm income is high, farmers are motivated to invest in Deere’s big green and yellow machines [tractors, etc.]. See article in The Wall Street Journal.
In Stop Acting Rich, I profiled farmers in terms of their productivity in transforming income into wealth. They rank 8th along this dimension among the top 200 high income occupational groups in America. What about their counterparts, marketers of investment services? My acid test in this context is the proportion of millionaires produced as a function of high income generators within this segment. They rank well below farmers, in between high income physicians and lawyers. But in terms of the proportion generating high incomes [$200,000 or more], they rank in the top ten.
Coming from farm country in Southwestern Minnesota and being the grandson of two farming families, I understand right away the difference you point out between these two types of people. But what about those who don’t go spending all of their money in the first place? Do those types of people exist? That’s me right now. I’m the saving/piling away cash for the future type. When people who are living like I am right now make more money, my bank sees more profits, because it has more money to lend out.
New silos and tractors are the status symbols in farm country.
So, they’re just buying different status symbols? After all, both depreciate rapidly and tend to be a better value when purchased gently used.
Part of the job of a marketer of investment services is to give off the aura of success and wealth, which attracts business. So, strategically buying “correct” jewelry and looking the part sends the appropriate social signals that increase an investment marketer’s income and builds their wealth.
Part of being a farmer is producing as many bushels per acre as circumstances permit. Having the appropriate machinery increases their income and their wealth.
So, it doesn’t make sense for most farmers to spend much of their income on Tiffany jewelry, and it is also equally senseless for investment marketers to buy tractors. Yet, farmers buying tractors and not buying jewelry is praiseworthy and a sign of superior character, yet investment marketers buying jewelry and not buying tractors is just another sign of their degradation and failure to build wealth?
I find it interesting that Cor would say that jewelry is an important part of looking the part for the investment professional. Since I am one, I find it perplexing that I am near the top of my peer group for income and production yet neither my wife nor I wear much jewelry. Looking the part or giving the “aura of success and wealth” is the funniest thing I have read in a while about investment marketers. Many of my firm’s top producers are more likely to be seen driving an F-150 than a Porsche. They are more likely to wear a Timex than a Rolex. To infer that these status symbols are important to the income success of the financial professional is to give in blindly to the typical Wall Street sterotype. We are not all Bud Fox types and don’t need to look, dress and act like he did.
I do have a John Deere tractor that I bought new 10 years ago that is worth 80% of the price I paid for it. I am not sure where you get the idea that tractors depreciate quickly. Many operate very effectively for 30+ years and hold their value very well.
Just some personal observations from the frontlines of this analysis.