by ilene - January 26th, 2011 5:11 pm
A strong quarter from Starbucks is marred by this jolt of reality
- The company now expects EPS of $1.43 to $1.47, reflecting 15% to 20% growth over fiscal 2010 non-GAAP EPS on a 52-week basis. No restructuring charges are anticipated in fiscal 2011.
- The company also expects EPS for fiscal Q2 and Q3 to be in the range of $0.32 to $0.33 in each period, and EPS in fiscal Q4 is expected to be approximately $0.35.
- Commodity costs, which are now expected to have an unfavorable impact on EPS of approximately $0.20 for the full fiscal year attributable primarily to higher coffee costs, are reflected in the revised EPS target.
Current estimates had been at $1.49. The stock is off about 2% after hours.
by ilene - December 16th, 2010 1:02 am
Consumer prices for virtually everything remain uninflated…ex Food and Energy of course.
MarketBeat’s Dave Kansas sees nothing for the Inflationistas to latch onto in this morning’s reading:
In November, the CPI rose a scant 0.1%, giving consumer prices an anemic 1.1% rise during the last 12 months. The so-called core, which excludes food and energy, also rose 0.1%, for an annual rate of 0.8%. Both readings are well below the Federal Reserve’s target rate of 1.7% to 2%.
Reports like these keep the green light on for the "Students of the Depression" running monetary policy.
For discussion’s sake, Peter Boockvar at The Big Picture has a slightly more alarmed take on the report…
The absolute CPI price index (aka cost of living) is now at the 2nd highest reading on record at 218.88 seasonally adjusted, just a hair off the all time high of 219.10. The core rate, which the Fed loves to focus on, is at an all time record high.
by ilene - December 2nd, 2010 4:24 pm
Charles Hugh Smith shows the games played in determining "inflation" levels when not all prices are included in the measurements. It may be worth dispensing with the misleading term all together. When prices for big-ticket items keep rising but the items are not considered in the calculations, we have a clear mismatch between government statistics and household realities. However you define inflation, there is a real problem from real people. And regardless of one’s operative definition of inflation, Inflation Is Rampant in Tuition, Healthcare and Property Taxes. - Ilene
Courtesy of Charles Hugh Smith, Of Two Minds
A number of big-ticket household expenses are skyrocketing: tuition, property taxes and healthcare.
Here is my simple definition of rampant inflation: you’re paying a lot more money for the same item/service but the quality/quantity is the same or lower--and your income is stagnant/declining. We are constantly told that inflation is near-zero, but the basket of goods selected for measurement seems not to include healthcare/ health insurance, college tuition or property taxes.
These costs are skyrocketing, and they are non-trivial expenses, running into the tens of thousands of dollars per year. I have addressed the difference in scale of expenses for the wealthy and the "middle class" before. For instance, $10,000 per year for healthcare insurance is a massive percentage of the after-tax income of a household earning $60,000 a year, while it is a modest percentage roughly equivalent to the sums spent eating out and traveling for a household earning $160,000 a year.
The same scale differences are present in all measures of inflation. Onions might well have declined over the past year, which means that the $30 I spent annually on onions declined to $29--a grand savings of $1.
Even a 10% decline in natural gas costs would only yield a modest $50 reduction in costs for my household. Let’s say another household consumes a lot more natural gas, and their savings would total $200 a year.
Compare these modest reductions due to deflation with the thousands of dollars in increases in big-ticket items like tuition, property taxes and healthcare.
Take property taxes. Nationally, according to the Census Bureau report on state and local tax revenues, total property taxes in the U.S. rose from $225 billion in 1998 to $476 billion in 2009-- an increase of 111% over a time period that saw costs rise 32% (i.e.…
by ilene - November 9th, 2010 4:56 pm
Courtesy of The Pragmatic Capitalist
Some people want you to believe that the Fed just injected the economy and stock market full of
Before we begin, it’s important that investors understand exactly what “
This is a crucial point that I think a lot of us are having trouble wrapping our heads around. In school we are taught that “cash” is its own unique asset class. But that’s not really true. “Cash” as it sits in your bank account is really just a very very liquid government liability. What is the difference between your checking and savings account? Do you classify them both as “cash”? Do you consider your savings accounts a slightly less liquid interest bearing form of the same thing a checking account is?
What is a treasury note account? It is a savings account with the government. So now you have to ask yourself why you think cash is so much different than a treasury note? What is the difference between your ETrade cash earning 0.1% and that t note earning 0.2%? NOTHING except the interest rate and the duration. You can’t use your 13 week bill to pay your taxes tomorrow, but that doesn’t mean it isn’t a slightly less liquid form of the exact same thing that we all refer to as “cash”. They are both govt liabilities and assets of yours.…
by ilene - November 4th, 2010 5:23 pm
Courtesy of The Pragmatic Capitalist
Great commentary right now on CNBC by Starbucks CEO Howard Schultz. He succinctly summarizes what QE is doing. Coffee prices have risen almost 50% since QE2 rumors first began in August. Schultz says the price rise is hurting his business and that he will not be passing the costs along to the consumer. He says the only people benefiting from this price rise are the commodity speculators because the consumer remains too weak to accept the price rise.
So what do we have? It’s quite literally a ponzi scheme. We have a Fed that has openly admitted that they want prices “higher than they otherwise should be”. And speculators are taking them up on their offer by borrowing in dollars and buying any and all inflation hedges. Meanwhile, the real economic benefit of this all is nil. In fact, it is doing nothing but generating margin compression, excess volatility in financial markets and promoting the financialization of this country – the same thing that nearly destroyed it just two years ago.
by ilene - October 26th, 2010 1:28 am
Courtesy of The Pragmatic Capitalist
I wish I could say that I am surprised that Ben Bernanke’s
“In my darkest moments, I have begun to wonder if the monetary accommodation we have already engineered might even be working in the wrong places.”
Welcome to your darkest moments Mr. Fisher. The one thing we can positively confirm about QE2 is that it has not created one single job. But what has it done? It has caused commodities and input prices to skyrocket in recent months. Reference these 10 week moves that have resulted in the Fed already causing “mini bubbles” in various markets:
- Cotton +48%
- Sugar +48%
- Soybeans +20%
- Rice +27%
- Coffee +18%
- Oats +22%
- Copper +17%
Of course, these are all inputs costs for the corporations that have desperately cut costs to try to maintain their margins. With very weak end demand the likelihood that these costs will be passed along to the consumer is extremely low. What does this mean? It means the Fed is unintentionally hurting corporate margins. And that means the Fed is unintentionally hurting the likelihood of a recovery in the labor market.
by ilene - October 18th, 2010 4:48 pm
Excerpt from John Hussman’s Weekly Market Comment:
An additional fruit of careless, non-economic thinking on behalf of the Fed is the idea of announcing an increase in the Fed’s informal inflation target, in order to reduce expectations regarding real interest rates. The theory here – undoubtedly fished out of a Cracker Jack box – is that lower real interest rates will result in greater eagerness to spend cash balances. Unfortunately, this belief is simply not supported by historical evidence. If the Fed should know anything, it should know that reductions in nominal interest rates result in a lowering of monetary velocity, while reductions in real interest rates result in a lowering of the velocity of commodities (commonly known as "hoarding").
Look across history both in the U.S. and internationally, and what you’ll find is that suppressed real interest rates are not correlated with an acceleration of real economic activity, but rather with the hoarding of commodities. Importantly, when people hoard, they generally hoard items that aren’t subject to depreciation, technological improvement, or other forms of obsolescence. Look at the prices of the objects that are rising in price at present – gold, silver, oil – and you will see this dynamic in action. That said, investors should not extrapolate these advances indefinitely, because all of these commodity prices have moved up in anticipation of Fed action, and now rely on massive and sustained quantitative easing. They do not represent low risk investment opportunities at present, elevated prices.
Read the whole article here.
by ilene - October 15th, 2010 1:18 am
Damn right they can and they probably will. They did it with commodities like wheat in early 2008 even as the consumption-to-stock ratio actually warranted a decrease in prices. This is now happening again as cotton hits a 15 year high, exploding corn prices drive the price of beef up to 25 year highs and the rest of the agricultural commodity complex takes off into the stratosphere.
When you link a financial derivatives market, which is technically infinite, to a market of actual hard goods (finite in supply), a price bubble becomes highly possible, even probable. When you drop rates to nothing, leave them there and then add the sex appeal of a long-term uptrend for global food consumption, you are tying a goat to a post in the T Rex cage, virtually beckoning the beast to come and gorge himself.
Marshall Auerback quotes an email exchange with commodities trader and portfolio manager Mike Masters over at Naked Capitalism:
Speculation in commodities can be exemplified from the following illustration. Money can be “created” by fiat. Because there is already much more capital available in the world than hard commodities, and also because money can effectively be created in a nearly infinite way; speculators, without limits, and with determination, can increase the price of consumable commodities, like food stuffs or energy, much higher than traditional consumers and producers (hedgers) can react. When derivative markets are linked to real commodity markets, this nearly unlimited capital from the financial sector can cause financially driven excessive price volatility. This is because in the derivative markets, a nearly infinite amount of new commodity derivative contracts can be created to satisfy the demand of financial sector speculators armed with fresh capital. However, because there is only a FINITE amount of bona fide actual hedgers (producers and consumers of the actual commodity), any speculative demand that exceeds the real amount of commodities that can be hedged at that time must be sourced from other speculators. However, these speculators will only supply new contracts via price- i.e. a new speculative demand that exceeds hedger supply must be sourced from new speculative supply at ever higher prices.
by Chart School - September 16th, 2010 1:07 pm
Dr. Paul viewed David Rosenberg’s chart picked up by Clusterstock as the "chart of the day" yesterday (posted here, with comments by Edward Harrison) and Paul concluded that this is not a good time to start buying gold. Obviously, with the rise in gold prices over the last decade, there was a great decade-long trade opportunity. But prices go up and down, and past performance does not dictate future results. - Ilene
Courtesy of Dr. Paul Price at Beating Buffett
The following chart was published on Clusterstock yesterday with commentary explaining how this proved that stocks were no longer a good place to invest…
As the S&P 500 was the only major asset class to have shown negative results over the past 10-years, they felt it was obvious that Gold, Long-term Bonds and Commodities would continue to be the best place for the next decade. In other wordsthe conclusion was that new money should be allocated to whatever had just finished going up the most!
I hear ads for gold every day shouting that, “I invested in gold 10 years ago and it’s the best decision I ever made.” “Gold has tripled since 2000. Get in now for the move to $3000 /oz.”
How many times have you made great profits buying something that just finished tripling? How did your real estate purchase in 2006 work out using that reasoning?
The same ‘Gold Bug’ ads were running in 1979 – 1980 sucking people in right at the top as Gold briefly broke through $800 /oz. for the first time. The second chart shows the disastrous results for those who took the bait.
See the longer-term chart below to learn that it took about 30 years for Gold to regain its 1980 highs (without adjusting for inflation). Even at this week’s new all-time nominal high Gold is still well below the old peak. So much for Gold as an inflation hedge.
I look at the first chart presented and draw the opposite conclusion from the Clusterstock article. If stocks suffered through 10 years of negative returns they might be quite cheap considering all the revenue, earnings and book value growth that took place.
by ilene - September 7th, 2010 11:24 am
Courtesy of Joshua M Brown, The Reformed Broker
I had an interesting conversation with a pal the other day about the potential for continued and exacerbated deflation.
For some background, my friend is the opposite of me in his spending proclivities – his consumer footprint is probably twice the size of mine. He’s got two parking garage spots in Manhattan, one by his apartment and the other by his office, both of which cost him $300-something a month. You can extrapolate from there to get a sense of what kind of bills this kid is seeing each month.
Anyway, he’s in the commercial real estate brokerage biz which is basically Ground Zero for the deflationary spiral right now. In the absence of businesses expanding and forming, prices per square foot are plummeting pretty much up and down NYC and around the clock. No one’s bringing in new employees so taking more space is literally the furthest thing from their minds. In a city that recently had eleventy-five hedge funds starting up each weekday that were willing pay whatever you quoted them for space, even the most sought-after buildings now sit at fractions of full capacity. What’s worse, there is no burgeoning industry waiting in the wings to take up all the recently vacated hedgie offices – there are only so many law firms and bankruptcy specialists after all!
My friend the broker may be profligate, but he is also realistic and sees that, because of capacity slack, this could continue for quite some time. His question is, short of moving to Tahiti with an easel and paint brushes, what can we do to counter the deleterious effects of this deflationary miasma?
My answer? Not having lived through any periods of sustained deflation in my own lifetime (born in ’77), I gave him the only answer I could, one based on common sense. I told him to Get Small.
Reducing the expenditure footprint allows you to preserve both cash and cash flow, two of the most valuable commodities of all when prices and returns on investment are falling all around us. Many will be forced to puke up properties, investments, businesses and crown jewel assets in a deflationary environment – but kings are made on the other side. The kings would be the counter-cyclically prepared, the guy showing up to the estate sale with an unencumbered bankroll.