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Wal-Mart, American Welfare, and the Way to Invest Well

Alyce Lomax
January 31, 2014

Last fall, investors and many Americans argued passionately about cuts to the Supplemental Nutrition Assistance Plan (SNAP). Today, we learned that Wal-Mart (NYSE: WMT) -- a company considered uber-capitalistic -- took a financial hit from the SNAP cuts.

We can also ponder the overall investing landscape given many Americans' lack of spending power as too many corporate managements utilize methods that hurt instead of help.

Wal-Mart has joined the litany of retailers issuing financial warnings after a dismal holiday season. However, its warning said more about its struggling customer demographic, which reflects a lot about our larger economy. Cuts to the SNAP program, which many bitterly viewed as unnecessary welfare for lazy Americans, are hurting this blue-chip company.

Sometimes it's easy to blame Wal-Mart for everything that ails us, but in this case, Wal-Mart's the one that signifies how badly Americans are taking some hits.

SNAP hurts more than individuals
In times of lower unemployment and more available jobs, the argument that some Americans don't feel like working is easier to defend. The key factor now, though, is that there aren't enough jobs to go around, which translates into pared income and spending power.

When Americans "give up" looking for work, "laziness" isn't a logical excuse for most jobless people. Sadly, when investors celebrate reductions in unemployment -- recently, the figure fell to a still-daunting 7.3% from 7.4% -- the ominous element is that those who have given up are no longer counted in the stats.

While Wal-Mart did compete well when it comes to sales during the holiday season, its overall customer traffic lagged, leading to lowered guidance for the fourth quarter and the year. The culprit: reduced food stamps as well as harsh winter weather in many areas. The negative SNAP headwind was more significant than expected. Wal-Mart represents about 18% of food stamp use, about $14 billion of sales as of September 2012.

Dangerous games
We're also seeing more layoffs, which can tell us that whatever is improving in our economy, it's not the employment outlook for many Americans.

Zynga (NASDAQ: ZNGA) shares are soaring today due to news of its $527 million acquisition of video game company NaturalMotion. Zynga's delivering 314 pink slips to workers, or 15% of its staff, may cut costs but sour the company's outlook over the long term.

Why does this matter beneath the numbers? Let's ponder morale. Many remaining employees are probably suffering from their own disappointment as well as survivor guilt -- given Zynga's disappointing post-IPO stock performance and layoffs that has already occurred; last year, it let go 520 employees. Survivors might worry about their own long-term futures as well as feel bad for former colleagues.

Maybe the employees of the newly acquired company will feel a little bit guilty themselves -- they've got a parent that's replacing other workers, pretty much at the exact same time.