Seeking Alpha

Andrew Sachais'  Instablog

Andrew Sachais
Send Message
Author Bio: Andrew Sachais’ focus is on analyzing markets with global macro-based strategies. He is a former hedge fund trader and currently writes for and Motley Fool. Sachais takes into consideration global equity, commodity, currency and debt markets, and is a recent graduate of... More
My blog:
The Street
View Andrew Sachais' Instablogs on:
  • Stagnant U.S. Wages Continue To Bolster Dollar Store Stock Gains

    NEW YORK -- Dollar stores are in demand as wage growth remains stagnant.

    Since the financial crisis in 2008, real U.S. wages have been on the decline, and this has led many cash-strapped consumers to shop at discount variety stores such as Dollar General (NYSE:DG) , Dollar Tree Stores (NASDAQ:DLTR), and Family Dollar Stores (NYSE:FDO) .

    Read More: Warren Buffett's Top 10 Dividend Stocks

    As demand for deep-discount retailers has heightened, share prices have accelerated to record highs, as seen below.

    FDO Chart
    FDO data by Charts

    Deep-discount retailers offer inferior goods, as defined by economic theory. More specifically, demand for inferior goods acts contrary to normal goods.

    When a consumer's income falls, he or she is more likely to increase consumption of an inferior good and decrease consumption of a normal good.

    For example, an individual is more likely to decrease how often he or she dines out during times of economic hardship but may begin to buy more ramen noodles at the grocery store.

    This hypothetical situation is just what occurred in the U.S. economy in the aftermath of the financial crisis.

    In fall 2008, economies worldwide were in distress, but shareholders and executives of dollar stores had cause to rejoice. The highest-performing stock of 2008 among the Standard and Poor's 500 stock index was Family Dollar, which saw its share price rise 42%, while broader equity indexes declined 37%.

    This phenomenon happens as brand loyalty disappears during an economic crisis, allowing dollar stores to shake off their negative stigma. Frugality became in vogue during a crisis, as is shown in a November 2008 New York Times food article on spending a month creating gourmet meals with groceries found only at a dollar store.

    FDO Chart
    FDO data by YCharts

    Persistently low wage growth has kept consumers coming through the doors of dollar stores almost six years after the financial crisis began. Low wages were a main topic at the Federal Reserve's meeting last month in Jackson Hole, Wyo.

    Fed Chairman Janet Yellen said that the sluggish pace of nominal and real wage growth in recent years may reflect "pent-up wage deflation."

    She added that "the evidence suggests that many firms faced significant constraints in lowering compensation during the recession and the earlier part of the recovery because of 'downward nominal wage rigidity' - namely, an inability or unwillingness on the part of firms to cut nominal wages."

    As uncertainty over real wages and the future strength of the labor market remain, it looks as if dollar stores could continue to move higher.

    The chart below shows the relationship of real wages to Family Dollar and Dollar Tree's stock price since 2000. The correlation began to take shape as real wages gradually fell in the aftermath of the financial crisis.

    As real wages have failed to recover in recent years, the stock prices of discount retailers are seen spiking higher.

    Read More: Draghi: ABS Buys to Have 'Sizeable' Balance Sheet Impact

    August employment data are set for release Friday.

    Look for changes in wages to signal the current health of the U.S. consumer. If wages are stagnant, expect dollar stores to remain in demand.

    Data provided by Yahoo! Finance

    At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

    Follow @macroinsights

    This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

    TheStreet Ratings team rates FAMILY DOLLAR STORES as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

    "We rate FAMILY DOLLAR STORES (FDO) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, increase in stock price during the past year and notable return on equity. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value." You can view the full analysis from the report here: FDO Ratings Report

    Tags: DLTR, FDO, DG
    Sep 05 12:42 PM | Link | Comment!
  • FDIC Coverage And Dodd Frank – What It Could Mean For Your Deposits

    Since the European financial crisis of 2011, new legislation has been written that could affect something as simple as your deposits at a bank. The traditional understanding is that, as a depositor, one has up to $250,000 of FDIC coverage per account. However, that may now change during the next financial crisis. In the simplest terms, too-big-to-fail banks (technically called "SIFIs"), such as JP Morgan Chase (NYSE:JPM), Citigroup (NYSE:C), Bank of America Merrill Lynch (NYSE:BAC) and Morgan Stanley (NYSE:MS), would be transitioned from being FDIC-covered into FDIC "Orderly Liquidation Authority" (OLA) receivership status under new Dodd-Frank legislation in the event of a systemic risk.

    The new OLA status permits the FDIC to repay the banks' obligations to its depositors with stock instead of cash in the event of systemic distress. Much of this is known within the financial community as part of a broader package of bank reforms. However, a critical component of the reform regarding the most basic assumption we make when we walk into a bank and make a deposit may be being overlooked.

    Many depositors are unaware of how banks account for their deposits. When any one of us enters a bank, and makes a deposit, it is immediately recorded as a liability on the bank's balance sheet. Therefore, you, the depositor, are actually a "creditor" to the bank. The new OLA receivership rules state that the Federal Reserve and FDIC now have the authority, under financial distress, to convert your cash deposits, savings, and CD's at the bank into equity shares of the bank itself in order to make the bank whole. This is often called a "bail-in."

    What one financial advisor based in Los Angeles, California discovered is that the basic FDIC coverage of $250,000 per account is not a certainty any longer under the new rules. She and her father-in-law, a former attorney, wrote an email to the FDIC to get clarification on the issue of deposit coverage under OLA status, and this is what they wrote.

    -----Original Message-----

    From: FDIC STARSMail <>

    To: <anonymous>

    Sent: Thu, Jul 10, 2014 2:03 pm

    Subject: FDIC Reply

    July 10, 2014

    Ref. No: SCC2014N-00XXXX-X

    Dear Mr. XXX:

    Thank you for contacting the Federal Deposit Insurance Corporation (FDIC). In your e-mail you specifically asked the following:

    "Re: FDIC Insurance

    Does the Dodd Frank Act place bank depositors at risk of losing their FDIC insurance?

    Presently the standard FDIC insurance amount is $250,000 per depositor, per insured bank, for each ownership category. This includes principal and accrued interest and applies to all depositors of an insured bank.

    The Dodd Frank Act has a provision giving the FDIC "Orderly Liquidation Authority" (OLA), for a "Globally Active Systemically Important Financial Institution" (GSIFI).

    OLA permits the FDIC to repay the banks obligations to its depositors with stock instead of cash. OLA permits conversion of the banks obligations to its depositors, ie savings accounts, checking accounts, CD's, to stock.

    If I am a depositor of a bank that is a GSIFI,which "fails", and becomes subject to the OLA, will I be covered under FDIC Insurance for $250,000 (cash to be returned to me)or will I be converted to a stockholder and receive stock in lieu of cash? Is this mandatory or discretionary with the FDIC?

    Does this change the present standard FDIC insurance for bank depositors?

    Does the OLA only affect deposits in excess of 250,000? What are the new rules? Pleaase explain. Does the OLA create a gap in FDIC protection for bank depositors where depositors will get stock instead of cash? Under what circumstances?

    The FDIC's response, after an initial, "We'll get back to you," was this….

    Your inquiry has been forwarded to the FDIC's Legal Division for review and response. You will receive a response directly from the FDIC Legal Division.

    If you have additional questions while the Legal Division reviews your inquiry, feel free to write us back or contact our office directly at (877) 275-3342.


    Federal Deposit Insurance Corporation

    Division of Depositor and Consumer Protection

    550 17th Street, N.W.

    Washington, DC 20429

    "I was shocked by the ambiguity of the FDIC's response. I would have expected to have a pretty swift and simple answer on these direct questions. The fact that the legal team of the FDIC needs to contact me is worrisome," says this financial advisor. "It goes completely against what we have come to expect in our generation of what happens to our cash at a bank under times of duress."

    She is still waiting for a response from the FDIC. Perhaps it's time we ask more questions of the new laws and their broader implications. It seems that the Federal Reserve and FDIC should at least be able to be more forthcoming about what their new legislation exactly means for regular Americans.

    Jul 15 5:30 PM | Link | Comment!
Full index of posts »
Latest Followers


More »

Latest Comments

Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.