We went recently offered a list of four crash-proof stocks for a fading market. Here are another four that either performed moderately well through the 2008 crash or, if they haven’t been around long enough, probably will perform better than others based on their clientele and position within the production structure of the economy.
Speaking of the structure of production in an economy, it is helpful to understand why and how that structure is affected during a recession to see why companies at the consumption end of the structure perform better than those at the production end.
Friedrich Hayek, the 1978 Nobel Laureate of the Austrian School of Economics explained that a recession is an inevitable result of a boom. A boom is caused by the artificial lowering of interest rates, and lower interest rates induce investors at the producer end to embark on long projects with long-term loans taken from new money in the system created by those rates.
Once interest rates are normalized, it becomes evident that the demand for those products at the prices needed for a profit does not actually exist. The money that was borrowed to pay for their production did not come from consumer savings, which would have represented demand, but was simply created out of nothing. So the businesses at the capital goods end of production fall, along with their stocks.
The consumption end, however, is less affected, because direct consumption is less dependent on low interest rates, and the less dependent it is, the better for the company. That said, stocks toward the cheap consumption end of the economy tend to do better than capital goods stocks dependent on low interest rates.
PriceSmart Inc. (NASDAQ: PSMT) is the Costco of Latin America. Given that much of that continent is mired in hyperinflation (Venezuela), a debt default (Argentina) or a debt crisis (Brazil) and the company is still doing well, that points to its resiliency in the face of economic disorder. Of course, PriceSmart also operates in the United States, but the fact that trouble in South America has not crushed it is a very good sign.
PriceSmart did decline in 2008, but recovered three months before market bottom. It is not fully decline proof, but its business is strong and stable.
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