Published on December 07 2017

The U.S. Middle Class Is Dying—But This Sector Will Thrive

By Justin Spittler, editor, Casey Daily Dispatch

It was a full-blown economic meltdown.

In 2008, the housing market had just imploded. Panic was spreading like a wildfire.

First it engulfed the banking sector…and then the stock market.

Next, companies far outside the housing or banking sectors started bleeding cash. Many were forced to downsize just to survive.

• Millions of Americans lost their jobs…

Naturally, many people cut back on unnecessary spending. Iconic retailers like Macy’s and Sears closed stores in droves.

But the financial crisis didn’t crush the entire retail sector. A special kind of retailer actually thrived during this difficult period.

• I’m talking about dollar stores…

These companies sell paper towels, hand soap, and canned goods for bargain prices—often for a dollar or less.

That’s why these companies thrived. People buy basic goods no matter what’s going on with the economy.

They also pinch pennies when the going gets tough. Because of this, many people visit dollar stores more often when the economy’s struggling.

Just consider how Dollar Tree (DLTR), the largest dollar store in the U.S., fared during the 2008–2009 financial crisis.

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• In 2008, its sales jumped 17%. Its profits rose 13%…

The next year, Dollar Tree did it again. Its sales jumped 7% and its profits increased 22%.

Investors took notice… They loaded up on shares.

Its stock surged 61% in 2008. The S&P 500 plunged 37% that same year.

There’s a reason I’m telling you this story…

It’s because another crisis is quietly playing out across the U.S. right now. One that could cause dollar store stocks to soar just like they did a decade ago…

• The middle class is dying…

The “middle class” refers to households that make between two-thirds and twice the national median income. These days, that means a total household income of $39,359–$118,078.

For decades, the middle class was the beating heart of the U.S. economy. But it’s been a different story since the start of the century.

According to a study from the Pew Research Center, the U.S. middle class shrunk in 203 of the 229 metropolitan areas between 2000 and 2014.

Now, some of these folks have climbed the socioeconomic ladder. But many have become worse off.

• This is clearly bad news for department stores…

Their whole business depends on a healthy middle class.

Dollar stores are different. They sell items that people can’t live without. That allows them to make money in just about any environment.

That’s why Dollar Tree’s sales are up 258% since 2010.

For perspective, Sears’ sales are down 74% over the same period.

Dollar General (DG) has also profited from the declining middle class. Its sales are up nearly 100% over the last seven years.

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• Dollar General is the second-largest U.S. discount store…

It has more than 12,000 stores in 43 different states. And it’s betting the U.S. middle class will get even smaller—by building more.

Dollar General’s CEO said in a recent interview:

The economy is continuing to create more of our core customer…

We are putting stores today [in areas] that perhaps five years ago were just on the cusp of probably not being our demographic,” he said, “and it has now turned to being our demographic.

Dollar General’s “core customer” is a family that earns less than $40,000 per year. In other words, it sells to low-income households.

• Dollar General isn’t just building a few stores in these markets, either…

It’s building thousands.

Garrick Brown, director of retail research at real estate giant Cushman & Wakefield, says Dollar General’s doing this for a simple reason:

Essentially what the dollar stores are betting on in a large way is that we are going to have a permanent underclass in America…

It's based on the concept that the jobs went away, and the jobs are never coming back, and that things aren't going to get better in any of these places.

• Dollar Tree is betting on a dying middle class, too…

Last year, it built about 900 new stores. This year, it will build about 1,000. That will increase its total square footage by about 7.5%.

This is a big deal.

After all, many iconic U.S. retailers are struggling to stay afloat.

Sears, for one, has closed more than 350 stores this year. JCPenney has closed 138 stores. And Macy's has shut down nearly 70 locations this year.

• These companies are in survival mode because the U.S. middle class is rotting away…

But that’s certainly not the only reason.

As regular readers know, Americans aren’t spending money like they did in the good old days. They’re visiting malls less often and doing more shopping online.

This is why I’ve been urging readers to avoid department store stocks at all costs.

But as I said above, dollar stores are a different beast entirely.

In fact, back in May, I said dollar stores were “the only retail stocks to own during the apocalypse.”

• Since then, Dollar Tree’s stock has jumped 36%…

Dollar General’s stock is up 29% over the same period.

Those are huge gains for such a short period. But both stocks will head even higher as the U.S. middle class withers away.

So keep these stocks on your radar, and consider picking up shares on the next pullback.

Regards,

Justin Spittler
New Orleans, LA
December 7, 2017


Chart of the Day: Copper Just Broke Out

By Joe Withrow, analyst, Casey Research

Copper, the world’s most important industrial metal, is spiking higher…

That’s the story of today’s chart, which compares the price of copper to the price of gold.

As you know, here at Casey Research we see gold as a reliable store of wealth… which makes it a better comparison of value than the dollar.

As you can see, copper had been falling relative to gold since May 2010. But that changed last month when copper broke out above its six-year downtrend.

There’s every reason to believe that copper’s rise will continue going forward.

As we showed you last week, there’s not enough copper to meet demand at today’s prices.

In fact, Bloomberg projects that the annual copper supply will fall 395,000 tons short of demand by 2022.

Basic supply and demand tells us to expect copper’s rise to continue accordingly…

—Joe Withrow


Reader Mailbag

Today, another reader writes in with thoughts on Doug’s interview on why millennials favor communism:

First I would disagree that most university professors are socialists. But even the non-socialist, and indeed much of America whether old or young, dislikes modern capitalism. Just as many modern police are reminiscent of the gestapo, way too many business people seem to have moral code barely distinguishable from scions of Nazi business.

Advertising blatantly lies; products maim; pharmaceuticals kill; the environment is fouled beyond repair; the drinking water is poison; the air is toxic; yet management ignores, denies, lies. People learn early that business is heartless and deceitful. Yes—capitalism is about profit, and nothing else. At least that is generally the rule.

Some would argue that is the nature of competition. But modern business is far removed from the economist’s ideal model of perfect competition. Perfect competition requires perfect knowledge as well as the much overlooked assumption of a social framework of common beliefs. (E.G. that the constitution is a sacred trust; a handshake is a contract; commerce is free of deceit fraud, etc.)

Those radicalized students are naively seeking a solution to a corrupt “CAPITALISM.”

–Kendrick


In Case You Missed It…

Regular readers know legendary speculator Doug Casey has identified opportunities that went on to return 721%, 928%, and 2,154%—as well as many more that paid 10-to-1 or more.

Next week, Doug is holding a free training master class to show readers how he spotted these trades. Reserve your spot here.