When in Doubt, Run the Other Way

When our entire economy came crashing down around ours ears, the only businesses that were shaking in the boots more than the real estate companies, was the retail industry. Between Barneys, Saks, Bloomies, and Bergdorfs sales have been running rampant. Nearly every brand that these stores carry took the approach of marking down their covetted items. I loved the sales but the problem was as a buyer I started thinking, if I can get these shoes 50% off, then why not wait to buy them until they're marked down to 70% off? So while there were great deals out there, the companies that were in competition to mark down their product more than the next company, didn't realize that they were devaluing their product. If I can buy a $500 pair of shoes for $200 or $300, why would I ever again spend $500 on this type of shoe? Nearly every single one of these companies that took the frantic mark down approach had dismal earnings last year. The only company that stood out among the rest was Hermes. Instead of focusing on marking down their items, they kept their prices the same and produced ads about how well made their lines of clothing and bags are instilling an idea how buying a product of theirs is an investment. Since it's so well made, the product will stand the test of time and therefore be worth whatever extravagant price. As a result, Hermes was one of the only high end brands whose earnings didn't tumble in 2009. As an investor, you should take a note from Hermes and not follow the crowd as they franticly buy super short term investments for fear of inflation.



Right now short term municipal bonds are yielding incredibly low. The reason for this is that since everyone thinks there's going to be massive inflation, they don't want to have long term investments where their interest won't be worth much so the demand for short term bonds is through the roof! The only problem is, there isn't actual inflation happening and there won't be until our employment figures start to turn around. Traditionally when inflation happens, the price of lets say milk goes up so the worker tells their boss they need another dollar in their paycheck to pay for this milk, the boss raises the salary causing wage inflation which in turn causes true inflation. What's been happening now is when the employee asks the employer for another dollar in their paycheck to afford the rising price of 'milk' the employer can't give it because then the company won't be competitive with all the other companies worldwide. Moral of the story is the employer closes up shop, letting all the employees go and opens up a shop in China, Vietnam, or wherever else he or she can for less money. This has been happening for the past 10 years and until we figure out a way to get employment on the rise, inflation is not a serious concern. My advice is to be like Hermes, go the other way. Invest in medium term bonds (10-15yrs out) to take advantage of what yields you can while not going out too far so you'll be prepared for when inflation does actually hit.