Incompetent FTC

The FTC in the United States has been completely incompetent for several decades now and just like any Ponzi or plunder scheme, it takes a crises to expose it. I have been railing for years how outdated the FTC is.  How their use of economic theory that is at least a century old / outdated should have been trashed a very long time ago.  Their decisions over the years to allow the US economy to become pretty much an oligarchy have been the most instrumental in American history and at this point.

I have been hearing for weeks about the lack of basic supplies, really basic supplies, to the health care industry.  I have heard NOTHING about why these supplies are in short supply.  I have read about how some of the shortages have been made up on a small scale but NOBODY is asking, "Hey, why or how did every major industry end up having so few suppliers?"

There is no way I am going to cover this topic in depth here. It is dissertation material.  However any idiot (who does not work for the FTC obviously) that has been alive at least 50 years has seen this process unfold even if they can't "see" the supply chains and producers disappear as obviously, they have seen it in their interaction with the world every day on at least the retail front.

While the FTC has been applying way out dated "rules" to every merger let's just look at a basic example, DIY or Home Improvement sector.  Mind you, what I say here goes for every industry the consumer touches and every supply chain, wholesale channel, manufacturing etc.  When top end, ie; retail, mergers happen a great deal of repercussions happen down stream.  These repercussions have been completely overlooked and utterly missed even though the same dynamics happen over and over again.  The mergers create immediate oversight of suppliers.  The desire for "economies of scale" mean the merged retailer looks at it's supply chain and tries to reduce costs, first by pitting suppliers against each other then eventually by offering monopoly positioning of the winner's products on their shelves.

What happens in this scenario?  If you make locks and have served say a tri-state area or some regional area for decades it is likely your existence is due to the consolidation of even smaller producers in the generations before you, before your product was mass produced in your factory.  Now you have a "market" that has served the retailers in your market, hardware stores, home improvement stores and the like. After a retail merger your company gets a call asking you to compete for continued access to the stores you previously served (along with other suppliers / competitors who operated in your market as well). The demands for cost reductions are pretty steep.  In order to be able to meet these demands you are going to need to increase output; get your cost of production down.  To do this quickly you call your competitors, who are getting the same demands from the retailer.  A merger is created and new investment to increase production / reduce costs between the suppliers.  This also creates another down stream effect on the providers of inputs to these manufacturers and down whatever chain exists in the making of your product.  For a while you win continued shelf space.

Meanwhile, the newly merged retailer is trading on the message of more variety, lower prices etc. to their customers and touting this great benefit to the idiot regulators who look at the market from a national perspective and sign off due to their outdated useless academic "models".  What happens over time?  Simple answer, desire for increased profits creates additional pressure on suppliers.  Retailer decides to shrink the number of suppliers over time going through additional rounds of requests for lower cost product.  Suppliers are forced to merge again, consolidate production more.  This further drives out the down-line supply chain.

Next, additional retail mergers and buyouts.  Those DIY retailers that serve regional markets start to merge. Private Equity firms step in and demand mergers or selling out to new "national" players in an ever drive to increase profits and squeeze out competitors.  FTC sits back and watches this slow train wreck.  Consumers see fewer choices on the store shelves.  Slowly the lower priced competitive products begin to disappear, being replaced by the mega suppliers who by now have merged, bought out competitors and managed to restructure to supply the entire nation from a much smaller supply chain.

Most manufacturing has been off shored by the surviving companies as the retailers go to them and say "hey, some factory in China can get me this product for $.05 cheaper".  Now this small margin would not mean so much in the past but now we are talking about thousands of locations where a nickle means millions of dollars when selling an item on a national scale.  Of course the final step is straight out monopoly shelf space where the retailer goes to bed with the suppliers to guarantee a designated profit on every item sold.

Monopoly shelf space, guaranteed profits, where to go next?  Increase prices, lower quality to squeeze more profit out of each unit of sale and most importantly, now you have monopoly suppliers with a "predictable" demand selling to oligopoly retailers all production is coming from one or two factories somewhere on the planet, ordered months or years in advance, sold into a radically shrunk supply chain, while engineers spend all of their research dollars figuring out how to cut costs and effectively dumb down products to increase margins.

I could go on, like explaining how these dynamics also mean sales forces look to the developing world to decimate any and all local production by flooding markets with their cheap mass produced products made in sweatshops by workers under some authoritarian regime as the markets in the developed world stagnates along with the population. But I will stop here.

Now apply the above dynamic to everything the consumer touches... Remember 2009 when the infrastructure spending bill resulted in shortages of seemingly simple products like the paint to put lines on roads?  Well now we are seeing how fragile this new dynamic is.  We (the FTC allowed) the total decimation of  manufacturing, driven by the consolidation of retail, producers, suppliers etc. and we now have the resulting repercussions. With now a full 70% of the US economy driven by consumer expenditure it does not take a genius to see how the incompetence of the FTC in allowing the rapid consolidation of every sector of the economy has created a recipe for disaster not only for the future of our nation's well being as a producer of goods, but now as a consumer of goods as these dramatically reduced supply chains have exposed the food supply in the same way.

Where are the MSM "reporters" or "anchors" that are asking "why are there only 2 companies in the country producing XYX?"  "Why are there 3 or 5 companies supplying 80% or more of our food on any given level, from retail, to production to distribution?"  Where are we as a nation when everything has been relegated to oligarchy?   I don't see the questions being asked.  Why, the oligarchy pays the MSM.  They would not challenge them. Nor would the incompetent government agents we have "elected" or those heading up the government agencies that have overseen this progress for half a century as they round trip from government to industry in just about every category of "regulation" the government has.

So now the "government" has to step in and procure basic supplies and force other companies to produce products because there are mass shortages of necessary supplies of, well, just about everything needed to meet the needs of the medical community.  Why don't we just ask the FTC?

The Office Supply Oligopoly is Reeling

Today's earnings announcement from one of the two major players in the "bricks and mortar" office supply retailers, Office Depot, was another telling story of the state of retail in America. Fewer and fewer players are offering more and more shelf space to fewer and fewer suppliers, resulting in lower selection, quality and higher prices to consumers over the last 20 years.  FINALLY this is catching up to the retailers and is sending their businesses into a free fall.  Anyone with 1/2 a brain knows to buy office supplies on line from Non-Brick and Mortar companies that gouge and rip off any flesh and blood buyer that walks into one of their stores.

The announcement read on Seeking Alpha states Office Depot will close 400 stores after it's merger with the other oligopoly player Office Max in November 2013. Staples, the 3rd oligopolist, announced just about a month ago the closing of over 200 stores. 

There is no mistake in why these companies are reeling from their business models.  They are totally flawed.  The model has been replicated in retail across the US for a couple decades:  Open big box stores with a large selection of supplies in every category.  Start with low prices that drives out all the "mom & pop" business that dominated the industry since the beginning of time.  Then start weeding out your suppliers, shrinking the selection of products in each category, while slowly raising prices.  Eventually each product category is down to one supplier and maybe your store brand.  Then keep raising prices.  Meanwhile, the producers of all of the products you used to sell start to also go out of business.  Thousands more manufacturing jobs disappear as the major retailers squeeze out the supply chain till it virtually disappears for all but the select few suppliers.  Now the retailer "is" the supply chain and those who produce products sell directly into that supply chain and are forced to continuesly lower their prices (forcing more and more production "off shore") to increase the profit margin of the retailer.  The also start to lower the quality of their own products to meet this spiraling need for higher profits every quarter to their investors as well.  If they don't play this game they will get swallowed up or merge or go out of business all together.  In the end it is just the end consumer who looses every time.

Enter the Internet and the migration of some of the more tech savvy "mom & pop" businesses.  They find those suppliers left producing and selling products to the non-oligopoly retailers and start selling  online at steep discounts to the brick and mortar retailers.  This phenomena starts to seriously eat into the business of the oligopolist.  Business, the bread and butter of the office supply industry, are not stupid. They go to alternative suppliers. The brick and mortar business start to market more to retail buyers, trying to sell consumer electronics, back to school supplies and other non-core products to consumers who are not as knowledgeable about pricing, are less frequent buyers and easier to rip off.  Eventually even this approach fails as consumers catch up to the game.  Stores close.

The above scenario has happened in many retail industries in the US.  One has to wonder what is on the minds of the Fed and other "economist" when they say there has been no inflation for so long and they are hell bent on increasing this supposedly non existent inflation.  Obviously they have no understanding of the retail dynamics that have been going on in the US for years. The fact that so many of the products Americans buy are sold by so few sellers and those sellers have been diligently shrinking their suppliers, resulting in prices that have done nothing but rise for the last two decades to the retail consumer seems to escape them.

Case in point: I went to buy one gallon of deck sealer a week ago for my deck.  I went to Sherwin Ripoff, I mean Williams.  This is another brick and mortar retailer to both consumer and contractor businesses that had to merge with Duron to stay in business, creating yet another strong oligopoly player in the paint business.   The result: One gallon of deck sealer is $47!  Yes $47 for a GALLON of deck sealer!!  This is INSANE!  I could start replacing the wooden deck boards for the cost of just two gallons of sealer to protect the wood!  Why is this so?  How is it possible?  (The Fed would say there is no inflation because the quality of the deck sealer has increased so much it is now WORTH $47! Ha!) Simple, from the chemical manufactures to the retailers there has been such consolidation that there are no other product options available.  What better then a heavy, expensive to ship item like paint to create an oligopoly industry in.  I could literally buy raw ingredients and make the gallon of deck sealer for less than $47 if I really wanted to. 

I refused to buy the Sherwin Ripoff sealer.  Instead I went to one of the other oligopoly sellers of paint products, Home Depot (the other being Lowes) where the retailer has followed the same pattern explained above and only allows ONE brand of deck sealer on their entire shelf space, Bear.  What is the result?  I got a gallon for ONLY $33.  Yea, deck sealer is worth about $8-$10 Max.  But we as a retail buyer are paying $33-$50 for the product.  Sure the profit margins are rising across the board for the few companies still manufacturing and selling the products but for how long before the entire game implodes? 

Who pays the most for this consolidation?  Well simply put, I can still swing the $33.  But to the rest of the world where $33 can be a day to a week's wages, no way.  The cost of buying nearly EVERYTHING has gone further and further out of reach of the rest of the world.  Yet you will hear hot shot economists bragging that the number of people living on less than $1 a day has declined to like a billion people.   Big F&%#@ing deal!  One needs $3 a day to even think about living in today's world without completely starving yet economist are still using a 25 year old metric to measure poverty.  Where are the central bankers and economist who actually see how the world works, not just plug in numbers in the latest modeling software and call it a day?