An excellent Wall Street Journal column asks, “Will we ever again trust Wall Street?” Columnist Jason Zweig looks at possible answers and provides background.
Zweig’s column for some reason reminds me of the early to mid-2000s goings-on with Albertsons Inc., the food and drug chain that was based in Boise until being sold in June 2006. The better-performing stores, including all Albertsons stores in Idaho, went to Minnesota-based Supervalu. Many suppliers left the Boise area or downsized significantly here.
The Albertsons experience – growing by acquisition starting in the late 1990s before itself being acquired – happened during an interesting period as it relates to interest rates. The Federal Reserve raised interest rates in 1994-5 and during the Dot Com stock run-up to stave off inflation, for example, but rates have been low for much of the past couple of decades.
Almost no one wants to go back to the sky-high interest rates of the late 1970s and early 1980s. But have we lost inflation as something to count on, something to trust?
Management and competition are reasons that stock in Boise-based Albertsons went virtually nowhere during the five years that the company’s last management team was at the helm. Low inflation also was a factor, a further hindrance to growing revenue from year to year in an increasingly price-competitive market.
The inflation rate probably will increase eventually (if demand rises) given how much money has been pumped into the system. But even if it does, it will be hard to trust in a company’s ability to simply pass on cost increases to the customer. There is too much competition, and there are too many variables.
Even market-leading companies that have been around for a century or more must stay on their toes.