Lemmings

Is it me, or does it feel like every US apparel brand (some quite mediocre) woke up one morning in the first half of this year and realized that they need to invest capital in Ch-India? Liz Claiborne is reported to be in talks with Reliance Retail to introduce some of its brands in India. Warnaco is going that route as well. Ralph Lauren, VF Corp, Phillips-Van Heusen. All of them. China is getting more capital as well -- not a shocker. Even companies like Brown Shoe are going into China to tackle the mass market.

I'm never going to penalize any management team for investing in growth -- especially in a market (India) with nearly 3.5x the population as the US. But it strikes me as so ironic that the capital investment into Ch-India ticks up when the US market becomes meaningfully more challenged. Unfortunately, the US is more challenged, in part, because imported inflation combined with weak consumer spending is hurting margins. So companies pull back investing in this market at a time when they should probably step it up to take share (in my opinion). Instead, they lack foresight/conviction, and play defense looking towards other markets with seemingly better growth.

Maybe these companies are taking advantage of the fact that the dollar appreciated 10% vs. the rupee in four months. Perhaps. But it is still down 15% from the '04-'06 trend. Also, shouldn't we consider WHY the rupee (and other Asian currencies) are acting horribly? Unprecedented inflation (food and other), political jockeying to curb social unrest, and draconian measures to attempt (attempt is a key word) to prevent India (and half of non-Japan Asia) from slumping deeper still into a borderline stagflationary environment.

My Partner, Keith McCullough, articulates the broader implications far better than me. I encourage you to take 10 minutes and read through his work on the topic.


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