Saturday, July 28, 2007

Rural-connected stocks dropped even more than the Dow in a very bad week for the market

"It wasn’t a good week for any stock index," and especially not for the Yonder 40, an index created four weeks ago by the Daily Yonder, the new rural-news site with a political bent. "The Yonder 40 fell 6.7 percent this week, dropping the 40-stock index of the rural economy below its beginning level of July 1," the Yonder reports. "The Dow was down 4.2 percent in the week. The NASDAQ was down 4.7 percent and the Standard and Poor’s 500 index was off 4.9 percent. All the indexes are below their levels of July 1."

All the Yonder 40 stocks were down for the week, except gunmaker Sturm Luger, which was "up strongly again," more than 16 percent, and smokeless-tobacco maker UST (which stands for its old identity, U.S. Tobacco), Yonder Co-Editor Bill Bishop reports today. "In the meantime, an interesting discussion has broken out about the meaning of the Yonder 40. Last week, The Rural Populist asked what the 40 really meant."

The RP is Brian Depew, who does the blog when he's not working for the Center for Rural Affairs in Lyons, Neb. In a note to the Yonder, he took issue with some elements of the index: “When Wal-Mart is doing well, businesses up and down main street in rural communities are being driven out of business. And when Wal-Mart is doing well money is being sucked out of rural communities, destined for the pockets of rich urbanites. When Smithfield is doing well, farmers aren't receiving a fair price for their livestock. And when Smithfield is doing well, family livestock producers are being put our of business. And so it goes for a number of the stocks in the Yonder 40. So, what does the Yonder 40 really tell us?”

A founder of the Yonder 40 and a former Standard and Poor's managing director, James Branscome, replied: "None of us may like it and would love a stock index that reflects the hard work of the small farmer and throws in the sweet smell of alfalfa drying in the windrow, but the reality of what really drives the rural American economy is Wal-Mart and the 39 other companies in the Yonder 40. We did take the Waltons down a few notches when we equal-weighted their $115 billion colossus in the Yonder 40 with the $4 billion Dean Foods that peddles butter and half and half, all made from real American milk. Or, at least, none of it from cows in China. We sorted through about 3,000 stocks before we selected the sainted 40. It would have been nice had we come across investable public companies that represent farmer cooperatives, rural electric co-ops, or worker-owned coal mines and sawmills. There ain't none. No fan of the Daily Yonder may be comfortable with it, but the reality is that Thomas Jefferson's vision of America as a nation of farmers and toilers in the soil is as dead as our third president. Or at least that's what you find when you try to construct an index using SEC-registered and stock-exchange-listed companies for rural America." (Read more)

1 comment:

Rural Populist said...

The conversation the accuracy of the Yonder 40 as an indicator or rural economic health continues over at the Rural Populist (http://ruralpopulist.org). Here is an excerpt of a longer post:

In outlining my objection, I will stick with Wal-Mart as an example. However, my objection is not about Wal-Mart per se, and the argument can be easily extended to Smithfield, Monsanto, or a number of the other companies that comprise the Yonder 40.

If you walk down Main Street in Lyons, Nebraska (population 960) where I live it doesn’t take long to start to understand the result of the Walmartization of rural America. A solid 50% of the buildings on Main Street are simply closed, boarded up or vacant. With a lack of economic activity on the street, even some remaining businesses are open sporadically at best. A few can still be counted on to be open every day, but of those, one often wonders how they manage to stay open and how many more years they will hang on for.

It hasn’t always been this way. But ever since Wal-Mart began their concerted campaign to infiltrate rural America, and stake their business model on gobbling up an ever-increasing share of rural retail activity, small businesses up and down Main Street in Lyons and small town streets like it across the country, have been shuttering their doors (pdf). Every time one does it means a loss of local jobs and local economic activity. These are losses that often have ripple effects throughout a community. Wal-Mart is most often located in a nearby mid-sized town, and even if one does drive to Wal-Mart to work, the jobs don’t pay what the local jobs did. To add insult to injury, Wal-Mart’s profits are wired to Arkansas at the close of business every day. With them goes the multiplier effect of money spent locally.

In short, this is to say, when Wal-Mart does well rural America does poorly. But let’s look at some numbers too.

From 1990 to 2000 Wal-Mart stock rose from an adjusted daily close of $6.45 per share to $53.31 per share. That is an 8-fold increase. Following the logic of the Yonder 40, this should be an indication of rising prospects for rural American during the same time period. But rural America did not fair quite so well during the 1990s.

Swept Away, a study done by Jon Bailey at the Center for Rural Affairs, reports that while per capita earnings for metropolitan counties in the states studied rose steadily between 1990 and 2000, rural farm and rural non-farm per capita earnings were essentially stagnant in real dollars. At the beginning of the decade, the average person in rural farm counties earned 58 cents for every dollar earned by the average person in a metropolitan county. But by 2000, the average rural farm county resident earned only 48 cents for every dollar earned by a metropolitan county resident. During the same time period, metropolitan counties also saw a job growth rate of 25%. Rural farm counties experienced job growth at a rate just 1/5 of metropolitan counties.

In the 10 year period in question Wal-Mart stock doubled, and then doubled, and then doubled again. However, for every year of that period, rural America slipped further and further behind the earnings and job growth of their fellow metropolitan residents. During this time period rural America also continued to loose population, watch the number of farmers decline, and watch the younger generation depart for the city.

So, there does not in fact seem to be a positive correlation between Wal-Mart’s stock price and the overall economic health of rural America. While I use Wal-Mart as the focus of my rebuttal, I will stand behind my argument in reference to the entire Yonder 40 index.

Read the entire post at: http://ruralpopulist.org/2007/08/04/as-wal-mart-stock-rises-rural-america-falls/