Wednesday, September 22, 2010

Market Flat, Budgets Flat, Dollar Stores Gain

Since I recouped my losses in the stock market last year--and then some--I've been remiss on providing updates on my investing adventures. Part of that is due to the fact that there haven't been many of them this year. I'm essentially flat.

The machines have taken over the market as exchanges and brokerage firms have become addicted to the phenomenon known as HFT, or "high-frequency trading," essentially (in my opinion and that of others) a scam whereby batteries of computers buy and sell tens of thousands of shares in nanoseconds to scalp a tenth of a penny on a large scale or, in some cases, to put large, traditional investors at a price disadvantage. This nonsense should be declared illegal, as it's completely distorted the market and driven nearly all retail investors (except me, apparently) from the market. With big upswings canceled almost immediately by big downswings, my portfolio, and many others, are essentially flat this year which isn't part of the game.

The only redeeming grace of this market is the mostly-ignored (until now) huge dividends being paid by high yielding junk bond, real estate, and energy ETFs (exchange-traded funds) and MLPs (master limited partnerships), all of which must pay out roughly 90+% of their profits as dividends to their investors. To make things even better, these dividends, to varying degrees in varying situations, can be tax-advantaged as well, a big plus in the era of Obamanomics where income redistribution appears still to be the rule.

Another fitfully lucrative investment has been the dollar stores, specifically Family Dollar (ticker FDO, now offering coupons online), Dollar Tree (DLTR), and Dollar General (DG, more online coupons). (California also has "99 Cents Only Stores" [NDN] which proudly proclaim that they're "the right more than ever!") I've been in and out of the first three as the occasion warrants, and they've generally been eating the lunch of larger big box retailers by offering decent quality goods at the price points most newly frugal Americans eagerly seek out.

Their secret is simple: they cater to battered American consumers by finding ways of packaging a large variety of useful goods in or around the $1 price point. Needless to say, sometimes, if you compare weight and unit cost with more normal sized packages, say, at Wal-Mart, the larger retailer may very well win on unit cost. But many consumers are so strapped these days, they only want to buy exactly what they need. Big bulk buys (as at Costco) will wipe out their meager monthly budgets.

It's a sign of our times and a fascinating story about how the once lowly-regarded (by the faux-wealthy) dollar stores are making a big difference in the lives of millions of cash-strapped Americans. Happily, the efforts of the dollar stores to help make budgets stretch are also putting $$ in the pockets of their investors as well, another aid in repairing those damaged portfolios that will be our only hope when Social Security ultimately fails.

For more about the dollar stores, read this interesting piece posted to CNBC online and originating from, mirabile dictu, the New York Times, which took the care to drop Tea Party bashing for a moment to report on some real news about real people and real companies.

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