The Grandest of Tea Parties
As of late, the GOP’s Tea Party has been in the public spotlight. However, unbeknownst to many, the global tea industry is the bigger reason to party. Valued at 90 Billion dollars, the tea industry represents the second most consumed beverage around the world.† Trailing just water, tea’s reach nearly knows no bounds.
There is, however, one caveat. The United States contributes but 3% to global demand for tea.‡ As one might expect, the majority of said demand comes from the over two billion individuals living in India and China.
Well aware of this discrepancy, Starbucks CEO and founder Howard Schultz purchased American tea giant Teavana. Regardless of your opinion on coffee or shopping locally, Mr. Schultz’s track record speaks for itself. So, what does Starbucks do with Tea? Firmly believing that the US demand for tea is strongly undervalued, Mr. Schultz and his band of baristas are now launching tea lounges.
If you are anything like me, you are probably wondering what in the world a tea lounge is. Sources describe these lounges as the more relaxed cousin of a Starbucks coffee shop. The lights are to be dimmed compared to their coffee-serving counterpart, as they attempt to create a calming, laid-back ambiance. I personally picture a marginally more intellectual Starbucks with some relaxing, yoga-esque music playing in the background.
While some might think a tea lounge is just crazy, or unnecessary, the fact that Mr. Schultz is allocating millions of dollars to this project speaks the loudest. Coming from the man who has put a successful coffee shop on almost every corner, I think tea lounges may very well be incorporated into normal life in just a few years. Rather than meeting an old friend or a date for a cup of coffee, why not go for the global drink of choice?
While all of this sounds great, these new tea lounges pose one large problem. A decade ago, a cup of coffee could cost you $1. Today, the same sadly cannot be said. If Starbucks does to tea what it did to coffee, will we be paying $4 for a 20-ounce cup of hot water and a bag of tea? As a tea-lover, I look forward to enjoying a nice cup of Darjeeling tea in a reclining chair discussing Goethe, hopefully not spending all of my money on the tea.
Small Cap Stocks Imply Further Growth Ahead
While almost all equity indices have had a stellar year thus far, not all indices are born equal. The Russell 2000 Index, which represents the smallest 2000 public companies in the United States, has advanced 32% this year versus only 19% for the Dow Jones Industrial Average (a 68.4% discrepancy).ᵝ According to Bloomberg, this gap is the largest it has been in 10 years.
In the last 34 years, there have been only four prior instances of the Russell 2000 outpacing the Dow by such a large margin. In three of those four periods, equities remained bullish, climbing even higher for a year or more.ᵝ
The small cap success implies even more positive news for economic growth. According to Bloomberg and the Investment News, the average company in the Russell 2000 Index receives 84% of its sales from the United States. On the other hand, the average company in the Dow receives only 55% of its sales from the United States. This is significant because growing small cap stocks implies consumer spending and national growth are steady and positive.
Small cap stocks are doing well in 2013 and history says we have a great shot in 2014 for even more growth potential, but this should not make you lose sight on your established investment policy strategy and diversification. Without remaining true to your investment policy strategy, mistakes can happen, opportunities can be missed, and emotions can win out over discipline.
The Markets
This newsletter was prepared by Bourke Wealth Management.
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The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.
Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
Past performance does not guarantee future results.
You cannot invest directly in an index.
Consult your financial professional before making any investment decision.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.
Sources:
Barron’s (http://online.barrons.com/home-page)
Bloomberg (http://www.bloomberg.com/)
London Bullion Market Association (http://www.lbma.org.uk/pages/index.cfm)
Morningstar (http://www.morningstar.com/)
Horsesmouth (http://www.horsesmouth.com/ )
Wall Street Journal (http://online.wsj.com/home-page?mg=inert-wsj)
Yahoo! Finance (http://finance.yahoo.com/)
People Daily (http://english.peopledaily.com.cn/)
‡ Tea USA, 4 November 2013 (http://www.teausa.com/14655/tea-fact-sheet)
ᵝTrick or Treat: Bulls Revel in Treats by Charles Sherry. 4 November 2013. Horsesmouth (http://www.horsesmouth.com/ )
† Wikipedia, 4 November 2013 (http://en.wikipedia.org/wiki/Tea)