Short skirts are in the news again. Hemlines are rising and, if you believe in statistical correlation, whenever hemlines go up, so do profits and business activity. No one has a logical explanation for this phenomenon, but it has held true for the past 30 years.
Perhaps optimism is the common denominator. The bottom line is that when short skirts are selling like hot cakes, , don’t sell short.
Are we still in a stagnant recession? Or, is the country heading for a business boom? Looking for a crystal ball to guide your investments? Possibly the short skirt theory is as good as any.
Perhaps careful, systematic analysis of leading economic indicators is the way to go. Is the Dow heading up or down? Nasdaq, the S&P 500? What about unemployment figures? Heavy duty equipment sales? The confidence index? The indicators head in all directions.
Can we average them all and find a reliable trend, or is that like having your doctor tell you that your cholesterol is high but your blood pressure is low? So it all balances out. Everything is uncertain. Republicans are doubtful whethwer we are on our way to recovery. Democrats are more optimistic.
However, if you stick with the short skirt test, the answer suggests a resounding economic “Boom! Boom! Boom!” Be optimistic. Short skirts are in. Happy days are here again. Not only will we be viewing more cheesecake, we shall soon be able to afford more cheesecake.
If neither the short skirt theory nor the mixed opinions of the experts thrill you, why not try my informal barometer or recession indicator — the Repair Rule? This indicates that, when the country starts slipping into a recession, both individuals and companies are less inclined to buy new equipment and more likely to make repairs. When happy days are about to be here again, we return to a throwaway economy.
I was once the CEO of a small, aggressive company specializing in a technique for repairing and restoring worn or damaged equipment. Our system involved a type of reverse machining. We trained people to put metal back on for the purpose of returning expensive equipment to years of future use. In order to use our method, customers had to expend several thousand dollars for an installation — usually on a capital equipment budget. For continued use, however, they needed only to buy a group of chemicals and supplies — much cheaper consumables requiring periodic replenishment.
For more than 35 years, my company weathered ups and downs. When times were good and the economy was bouncy, we received numerous demands for new equipment. When hard times were in the offing, there was a precipitous fall in new installation orders. Capital equipment sales dropped off. Repeat orders for consumables sharply increased.
What was true for my company must also be true for most firms marketing tools or equipment used for repairs. Further, I am sure that the same situation applies with automobile owners, housewives and office managers. If cars, refrigerators, ovens, telephones, copy machines, etc., are on the blink, and times are good, buy a new one. Otherwise, send for the repair man.
I don’t know if statistics are readily available on repair and service expenditures vs. capital equipment, but if you can find them, add them to your arsenal of information leading to investment profits. For less fuss and feathers, look closer to home. Ask your wife if the old toaster has been repaired or whether she bought a new one. Has the TV repair man been in lately?
A valid rule? Perhaps. If you don’t like it, however, you can always pore over economic indicators. Or go back to short skirts, a more stimulating way to see where the economy is heading.
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