The Stiglitz Trade: How I Learned to Love Canned Goods, Guns, Gold and iPads

by: NakedValue

In the latest Vanity Fair, Nobel Prize winning economist Joseph Stiglitz writes an article highlighting America's growing and unhealthy gap in distribution of wealth between the rich and the not-rich. The distribution is the result of two factors, with the rich becoming much better off and certain segments of the not-rich.

Here, Stiglitz juxtaposes the recent wealth accumulation among the wealthy against the experience of everyone else:

The upper 1 percent of Americans are now taking in nearly a quarter of the nation’s income every year. In terms of wealth rather than income, the top 1 percent control 40 percent. Their lot in life has improved considerably. Twenty-five years ago, the corresponding figures were 12 percent and 33 percent.

While the top 1 percent have seen their incomes rise 18 percent over the past decade, those in the middle have actually seen their incomes fall. For men with only high-school degrees, the decline has been precipitous -- 12 percent in the last quarter-century alone. All the growth in recent decades -- and more -- has gone to those at the top.

Ultimately, not only does Stiglitz think that this is unfair, he puts his economist hat back on and discusses why this trend is bad for the long term health of the country including the reduced opportunities, distortions and underinvestment in necessary infrastructure and research.

Among the reasons for the current wealth distribution, Stiglitz blames influence of the elite (including the financial industry's manipulation of the financial system), lax regulation and poor tax policy, specifically the capital gains tax rate.

Stiglitz also brings up a term that I haven't seen before. He doesn't believe in trickle down economics, but he discusses "trickle down behaviorism" where by people live beyond their means - presumably mimicking the wealthy. Stiglitz goes on to point out the other various ways in which the inequities have permeated society including the disproportionate absence of the sons and daughters of the wealthy enlisting in the army.

But this isn't merely an economist's story, it's a foreboding plea for change. As he looks at the political and social troubles in the Middle East and compares them to this country where 20% of the population is underemployed and one in seven people are on food stamps, Stiglitz thinks that this country faces a real threat.


One thing is clear, Stiglitz is not calling for social unrest, he just believes that the current wealth gap in this country is unhealthy. Still, after reading the article, it's hard not to seriously consider the current state of the union. While we generally agree with Stiglitz's points, we think Stiglitz is a being a bit sensationalistic by comparing the US to the current events in the Middle East.

If you have the same dour perspective as Joseph Stiglitz, you may want to consider these companies. We call it the Stiglitz Trade:

Canned Foods

Hormel (NYSE:HRL), one of the world's largest processors of food. Among their most popular products is Spam. If social unrest is near, households could spend a higher proportion of their food budget on canned foods.


Smith & Wesson (SWB)

Sturm, Ruger & Co (NYSE:RGR)

Both gunmakers should prosper in times of chaos as people take extra steps to protect their properties. Both companies are fairly small and as such, a small shift in gun ownership could be a significant boost to the market capitalization.


You may want to actually have the physical bullion on hand, but for those of you willing to accept the liquidity risk, you easiest way to bet on gold is through the SPDR Gold Trust ETF (NYSEARCA:GLD). With a net asset value of more than $50 billion, it is a very liquid investment.

Another way to invest in gold is through gold miners such as Newmont Mining (NYSE:NEM) or Barrick Gold (NYSE:ABX). We featured Newmont Mining in a recent article because it is a dividend paying stock near its 52 week lows. Miners can be a leveraged way to bet on gold, but investors also assume the idiosyncratic managerial and operating risks.


Apple's (NASDAQ:AAPL) products are some of the most popular in the world despite their premium prices. If the wealth gap closes by making the non-rich better off, it would be a huge boon for consumer retails like Apple.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AAPL over the next 72 hours.