Profit from the Failing Economy
If you’ve got money, why make more by backing the industries that feast on all those other poor saps out there. It’s the American way!
The racket: Thankfully, even in bad times, “People will still smoke and drink and gamble,”
says Charles Norton, manager of the Vice Fund, a vigorous mutual fund that invests
in alcohol, tobacco, and gaming (in addition to defense and aerospace stocks).
The forecast: Recessions spell boom times in the vice game. The claim that these stocks are not only recession-proof but actually robust in downmarkets received a huge boost after the last economic downturn. Here are the green-machine stats: Tobacco stocks soared 56 percent and alcohol stocks gained 46 percent in the five years that ended in mid-2003, even as the broader market declined 14 percent. Bring on the financial pain, America!
How to sleep at night: Hey, rehab counselors and oncologists need work, too.
The racket: Rent-A-Center and ColorTyme, owned by same behemoth company (symbol: RCII) “rent” housewares to folks who can’t afford to drop cash on a couch or a flat-screen. Thing is, once the loan term is up, the suckers, er, renters, have paid nearly three times what the item costs and still may not own it. If someone were to give a loan with a 300 percent fee or interest rate, they’d be ar-rested under usury laws, i.e., for loan sharking.
The forecast: Thanks to a three-pronged poor-folk prod—(1) the growing recession, (2) the age of the four-figure HD flat-screen television, and (3) the coming death of analog (antenna) broadcasts next year—Rent-A-Center netted $756.6 million in the first quarter this year.
How to sleep at night: Free delivery!
The racket: The skeeziest middleman in commerce, the pawnbroker, gives minimal cash to desperate souls for their goods, then turns around and sells them for a profit.
The forecast: “Pawnshops are in the business of providing short-term financing for people
this economy is going to affect the most—those who can’t get conventional credit,” says Henry Coffey, an analyst with the investment firm Ferris, Baker Watts, Inc. who forecasts the stock of Cash America, a pawnshop company with more than 450 stores (symbol: CHS).
How to sleep at night: Hock shops help people. Think Dan Aykroyd in Trading Places. His watch—which told time in Monte Carlo, Paris, Rome, and Gstaad—earned him 50 bucks in a Bo Diddley’s pawnshop. Score! Wait, that was the movies…You’re going to hell, Winthorpe.
The racket: The tightening of bankruptcy laws last year (which makes it harder to ditch debt) gave the collection agency industry reason to never stop calling you until you pay up.
The forecast: With the continuing mortgage crisis, bum car loans, and the steady stream of delinquent credit card users, the collection business has never been better. Many publicly held agencies like Asset Acceptance Capital Corp. (symbol: AACC) are seeing demand soar and are frantically hiring additional crews of phone jockeys to harass the masses.
How to sleep at night: The depressingly grim economy of Buffalo—the U.S. capital of debt collection agencies (108 and counting)—has seen a much-needed hiring boom thanks to the rising number of deadbeats out there. You’re welcome, Bills fans.
The racket: Vulture firms (known as “opportunity investors” at the country club) buy up unhealthy companies, then make them profitable. Think steel plants a few years back and mortgage lenders now.
The forecast: Hedge funds and distress-loving investment firms like WL Ross & Co. are swooping down on Wall Street’s casualites from the mortgage mess, which means they’re confident these companies can bounce back.
How to sleep at night: Sure, these suits come in and slash jobs, but they save companies from folding altogether. So some people do keep their positions—they’re just paid less, have more responsibility, more hours, and fewer benefits. But this ragtag staff has a dream and a crazy plan that might work if they put away their differences and work together!
The racket: Brat Pack movies and Prince songs helped our horny parents get down and dirty in the ’80s, resulting in a current spike of 18- to 24-year-old males—the most crime-prone peer group. And because government budgets are squeezed, private outfits are ready to step in with cells, trained guards, and beat-downs at a bargain.
The forecast: Mandatory sentencing and tougher immigration laws guarantee we’ll keep locking people up at record numbers, says Kevin Campbell, an analyst at Avondale Partners of Nashville. Campbell has a “buy” rating for the top publicly traded prisons, The GEO Group (GEO), Corrections Corp. of America (CXW), and Cornell Cos. (CRN).
How to sleep at night: With your eyes shut—unlike the boys in C-block.