During the Thanksgiving period and similar Harvest festivals in other countries and cultures we become more mindful to be thankful for what we have. This week, Thomas Dolan in a Barron’s editorial comment, noted he was grateful for our market system. I agree. Dolan feels the price discovery aspects of a free market are beneficial for the financial community and others. As we have been taught, if the markets are sufficiently informed, prices eventually reach an equilibrium point where both buyers and sellers find value. (Whether the interventions of various governments around the world will aid in this discovery of equilibrium is an interesting and worthwhile discussion for another time.)
As part of our Thanksgiving weekend tradition, my wife Ruth and I conduct informal market research at the nearby high-end Mall and in local stores in our small town. At 8:30 AM on “Black Friday” I arrived at the Mall with a family member. This was after the early morning openings of department and promotional stores, but prior to the mandatory opening of all stores. We were able to park closer to the entrance than on a normal week-end. Not a good sign for the merchants.
Walking through the Mall we saw many people carrying store-labeled shopping bags, but appearing only to have a single, relatively light weight box or bag. Many people must have entered the Mall through the “anchor” department store, but walked through without buying anything. The exception was the one department store which was heavily advertising promotional prices. Their shopping bags were being carried by perhaps half the shoppers we saw. Three stores did have good crowds. The first was a department store renowned for good service and quality, as well knowledgeable sales people. The Apple store also drew a good crowd of mostly, but not all, young people. However, Apple did not need the entrance line it had set up, Finally, one of the two mobile phone stores had somewhat more shoppers than its normal crowd. At the other cell phone store the handful of clerks outnumbered the potential buyers. My initial conclusion is that shoppers were being highly selective in their purchases.
Later that morning I went to the downtown retail section of our community and found plenty of parking available. I noticed that traffic was lighter than normal on our Interstate highways. Obviously there were fewer shoppers involved with competitive shopping. Perhaps the arena for finding the best prices has been captured by the Internet. Current gas prices are no longer a plausible excuse for weak retail sales. The dampening factor could be that we live in an area which is a financial services “ghetto”, Many of our neighbors work in or around Wall Street, and others have sizeable portfolios which have taken a steep hit.
On Saturday, Ruth returned to the Mall initially to pick up some clothes being altered to fit a more slender frame. The magic of a good merchant persuaded her to consider unintended purchases. She found great bargains seriously marked down, and not advertised. Discussing her Saturday experience, Ruth commented that buyers were not only being more skillful buying at perceived great price, but in many cases upgrading quality from the their everyday purchases. Our Thanksgiving research demonstrated that the market system is working and that determined shoppers were finding their equilibrium points. This is good news.
Analysts seek to extrapolate investment conclusions through small, hopefully representative samples. The skilled retail shopper and the relatively low purchase price of individual stocks and domestic stock funds suggest that both shoppers and investors are waiting. What are they waiting for?
Lower prices are not necessarily the answer, as demonstrated by shoppers’ willingness to step up to higher price goods if they truly represent a bargain in price and quality. My guess is that retail investors and a substantial number of institutional investors will become buyers in earnest when their confidence returns, even if that means cheap prices are not at hand.
The lack of confidence is one of the reasons for currently lackluster retail sales. Many families, including our own, are cutting back on the quantity of planned Christmas presents. In doing so, we hope to avoid embarrassing family members and friends who are experiencing difficult times.
Substituting a large amount of gifts by a smaller number of high quality items is a good example of the market system working selectively. As we get closer to Christmas, a sudden surge in the retail trade or in participation in the market, may signal the early stages of a return of some confidence.
I am extremely appreciative that we live in a culture where the market systems often direct our economic moves.