NYHFR Survey: $15 Federal Minimum Wage Will Mean Short Opportunities in Fast Food, Retail, IT Support

Aug 27 2015 | 3:42pm ET

The latest meeting of the New York Hedge Fund Roundtable tackled the thorny question of income inequality in America. 

In a survey, Roundtable members believe that greater income equality in America could be attainable under the right conditions, according to a statement by NYHFR. However, in the short run, members predict that an increase in the federal minimum wage would create significant opportunities to short, particularly within the fast food and wholesale retail arenas. 

Income inequality was the focus of the Roundtable’s August event, during which economist and Columbia University professor Joseph Stiglitz, the 2001 recipient of the Nobel Memorial Prize in Economic Sciences, spoke about his book “The Great Divide: Unequal Societies and What We Can Do About Them.” 

The topic has increasingly moved to the forefront of national and local political discourse, and its ramifications are wide reaching. 

“The debate over income inequality is at the top of the mind of many hedge fund managers and investors,” said said Timothy Selby, president of NYHFR. “Professor Stiglitz’s presentation was met with a lively interaction of dialogue covering both sides of the debate and attendees developed a greater appreciation of the complexity of this issue.” 

Following are some of the key findings of the August survey, which was done electronically:

  • If it could be proven that greater income equality would ultimately help the economy as a whole, 70% of Roundtable members believe greater income equality could actually be achieved, while 30% of respondents believe the prospect is unrealistic.
  • When asked where they believe the best investment opportunities would be if the federal minimum wage increases to the suggested $15 range, 44% of respondents said they think the fast food and wholesale retail industries would be among the hardest hit, creating shorting opportunities among companies in those areas; 33% think the best opportunities would lie in overseas investments within sectors such as IT support and other industries where jobs would likely be outsourced; and 23% believe long-term investments in companies within the healthcare arena would be most attractive.
  • Asked what they believe the result of an increase in the federal minimum wage would be, 43% of respondents believe that unemployment would increase because the rise in employment costs would force companies to cut jobs; 35% think there would be a decrease in the income gap; and 22% think that the country’s lowest wage group would actually be harmed because many people would suddenly be ineligible for welfare services.
  • 62.5% of respondents think the biggest factor that has contributed to the increase in wage equality since the early 1980s has been politics and the policies that have been put in place over the past couple of decades; 20% think the rising cost of higher education has been a major factor; 15.5% think a federal minimum wage rate that has failed to keep up with the cost of living is to blame; and 2% think the cost of healthcare has been a major factor.

Somewhat tangentially, respondents were also asked about the ultimate impact of the government’s bailout of large banks during the financial crisis:

  • 47.5% thought the bailout, coupled with quantitative easing and artificially low interest rates, proved that trickle-down economics was and always will be a flawed theory.
  • 42.5% thought the bailout benefitted the financial system as a whole by preventing a shutdown of the entire system.
  • 10% said that the only beneficiaries of the bailout were the banks on the receiving end and their investors.

NYHFR surveys typically include interesting bonus questions for respondents. This time around, Roundtable members were asked to name the individuals they believe will end up on the Republican ticket. Their replies:

  • For the Republican presidential nomination, 59% of respondents named Jeb Bush; 15% chose Donald Trump; another 15% said Scott Walker; 7% said Chris Christie; and 4% said Marco Rubio.
  • For the Republican vice presidential nomination, 25% named John Kasich; 21% said Marco Rubio; 17% picked Ben Carson; 8% said Scott Walker; another 8% chose Kelly Ayotte; and another 8% said Donald Trump; 5% picked Ted Cruz; 4% named Chris Christie; and 4% said Jeb Bush.

Respondents to the survey were as follows: 25% were fund managers, 37% were service providers, 8% were risk management or trading professionals, 5% were allocators; and 25% classified themselves as “other.”

The New York Hedge Fund Roundtable is a non-profit organization focused on promoting ethics and best practices within the alternative investment industry. The membership consists of investors, fund managers and other industry professionals who regularly meet to discuss current issues within the industry and connect with peers.

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