Posts Tagged ‘prices’

Shares Of Starbucks Slide, After Company Warns That Commodity Inflation Will Whack Earnings

Courtesy of Joe Weisenthal, Business Insider 

Starbucks logo

Image: Starbucks.com

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.


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Disinflation Continues in November Core CPI Report

Courtesy of Joshua M Brown, The Reformed Broker 

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.

Sources:

November CPI Offers Little to Inflationmongers (MarketBeat)

Benign Inflation?  Not As I See It  (TBP) 


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Inflation Is Rampant in Tuition, Healthcare and Property Taxes

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 

Inflatable rubber ring floating in the sea

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.…
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UNDERSTANDING THE MECHANICS OF A QE TRANSACTION

UNDERSTANDING THE MECHANICS OF A QE TRANSACTION

Courtesy of The Pragmatic Capitalist 

Hypodermic needle

Some people want you to believe that the Fed just injected the economy and stock market full of money that will now result in an economic boom and much higher prices in most assets.  That’s simply not true.  Here’s the actual mechanics behind QE.

Before we begin, it’s important that investors understand exactly what “cash” is.  “Cash” is simply a very liquid liability of the U.S. government.   You can call it “cash”, Federal Reserve notes, whatever.  But it is a liability of the U.S. government.  Just like a 13 week treasury bill.  What is the major distinction between “cash” and bills?  Just the duration and amount of interest the two pay.  Think of one like a checking account and the other like a savings account.

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.…
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HOWARD SCHUULTZ EXPLAINS HOW QE IS HURTING STARBUCKS

HOWARD SCHUULTZ EXPLAINS HOW QE IS HURTING STARBUCKS

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.

Updated: 


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WELCOME TO RICHARD FISHER’S “DARKEST MOMENTS”

WELCOME TO RICHARD FISHER’S “DARKEST MOMENTS”

Courtesy of The Pragmatic Capitalist 

I wish I could say that I am surprised that Ben Bernanke’s policies are failing, but quite frankly nothing this Fed does ceases to amaze me any longer.  His latest folly of QE2 is having profound effects already and it hasn’t even started yet!  Unfortunately, it is having its impacts in all the wrong places.  The other day, Richard Fisher remarked:

“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.


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The Recklessness of Quantitative Easing

The Recklessness of Quantitative Easing

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. 


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Meanwhile, at the Hall of Unintended Consequences…

Meanwhile, at the Hall of Unintended Consequences…

Courtesy of Joshua M Brown, The Reformed Broker 

Can ultra-low rates combined with the hedge funds’ Need for Speed create a food price bubble?

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.

To sum up, we’re talking about an untethering…
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How Investors Get Suckered Time After Time

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 

How Investors Get Suckered Time After Time

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…

asset-class-returns-aug-2000-through-july-2010

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?

gold-price-charts-1975-1980-and-1980-1985 

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.

gold-price-charts-1975-2010-and-2000-20101 

gold-inflation-adjusted

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.

I’d be avoiding…
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Get Small

Get Small

reformed broker, ant manCourtesy 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.

We’re not…
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Zero Hedge

Contagion Continues: Italy, Spain Stocks Tumble To Post-Greferendum Lows

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Having bounced midweek on 'hope' of a deal and 'faith' in Draghi's containment, European stock markets are tumbling back to the post-Greferendum lows of Tuesday. Italy and Spain are now down 5.5 to 6% and as the European close nears - and the realization thanks to The IMF that the vote is a simple Yes/No to debt haircuts - stocks are being sold and volatility is picking up. Bond spreads are leaking higher but it is clear that what Draghi really 'contained' was EURUSD which remains only marginally lower on the week.

European stocks' downside appears to not be 'contained'...

...



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Phil's Favorites

Greek Banks Down to Last €500 Million; Vote for Servitude Takes Slight Lead; IMF Says Greece Needs Another €60 Billion Bailout

Courtesy of Mish.

Greece Roundup

  • A "yes" vote in favor of servitude has now reached a slight majority according to some Greece referendum polls. How accurate the polls are is an issue.
  • Yanis Varoufakis, Greece’s finance minister, said he would resign if Greeks voted Yes in Sunday’s referendum on the country’s bailout. "I will not sign another extend and pretend agreement", said Varoufakis.
  • Greece to run out of essential food and medicine within days and banks down to last €500 million.
  • Daily allowance of cash from ATMs has dropped from €60 to €50.
  • Three quarters of business leaders think Greece will be forced to leave the eurozone in the next 12 months.

Vote for Servitude Takes Slight Lead

Reuters reports ...



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Market News

News You Can Use From Phil's Stock World

 

Financial Markets and Economy

Did the IMF Just Open Pandora's Box? (Zero Hedge)

By now it should be clear to all that the only reason why Germany has been so steadfast in its negotiating stance with Greece is because it knows very well that if it concedes to a public debt reduction (as opposed to haircut on debt held mostly by private entities such as hedge funds which already happened in 2012), then the rest of the PIIGS will come pouring in: first Italy, then Spain, then Portugal, then Ireland.

Baker Hughes rig count rises for the first time in 29 weeks (Business Insider)

The number of US oil rigs in use just rose for the first...



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Chart School

Neutral Day

Courtesy of Declan.

After yesterday's gains there was no more gas in the tank to squeeze any more out of the market. Worryingly, the Russell 2000 finished near Monday's lows in a relative loss to S&P and Nasdaq, suggesting bearish leadership will come from speculative Small Caps, and that further losses are likely. The S&P recovered afternoon losses, but the Spinning Top candlestick of today suggests the advance is slowing, and what may be emerging is a 'bear flag'. In the meantime, the index is caught in a no-mans land between resistance and support. ...

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All About Trends

Mid-Day Update

Reminder: David is available to chat with Members, comments are found below each post.

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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Kimble Charting Solutions

Shanghai index creates historic reversal pattern like 2007

Courtesy of Chris Kimble.

CLICK ON CHART TO ENLARGE

Much of the attention around the world seems to be revolving around a small country called Greece. What about the most populated country in the world (China), any key messages coming from there of late?

Well another Month, Quarter and Half a year are in the books. With this in mind I wanted to look at Monthly action of the hottest stock market in the world, the Shanghai Index. Above looks at the Shanghai index over the past 25-years. The 100%+ rally over the past year has pushed the Shanghai index up to its 23% Fibonacci ratio and a long-term resistance line, that has been in play for 25-years at (1) above.

As the Shanghai index was hitting this...



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OpTrader

Swing trading portfolio - week of June 29th., 2015

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Digital Currencies

BitGold Now Available in US! Why BitGold?

Courtesy of Mish.

BitGold USA

Effective today, BitGold Announces Platform Launch in the United States.

BitGold, a platform for savings and payments in gold, is pleased to announce the launch of the BitGold platform for residents of the US and US territories. As of today, US residents can sign up on the BitGold platform and buy, sell, or redeem gold using BitGold’s Aurum payment and settlement technology. US residents will also have access to the BitGold mobile app and a prepaid card when these features launch over the coming weeks. Send and receive gold payment features are not initially available in the US.

About BitGold

...



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Sabrient

Sector Detector: Bulls under the gun to muster troops, while bears lie in wait

Reminder: Sabrient is available to chat with Members, comments are found below each post.

Courtesy of Sabrient Systems and Gradient Analytics

Two weeks ago, bulls seemed ready to push stocks higher as long-standing support reliably kicked in. But with just one full week to go before the Independence Day holiday week arrives, we will see if bulls can muster some reinforcements and make another run at the May highs. Small caps and NASDAQ are already there, but it is questionable whether those segments can drag along the broader market. To be sure, there is plenty of potential fuel floating around in the form of a friendly Fed and abundant global liquidity seeking the safety and strength of US stocks and bonds. While the technical picture has glimmers of strength, summer bears lie in wait.

In this weekly ...



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Pharmboy

Baxter's Spinoff

Reminder: Pharmboy and Ilene are available to chat with Members, comments are found below each post.

Baxter Int. (BAX) is splitting off its BioSciences division into a new company called Baxalta. Shares of Baxalta will be given as a tax-free dividend, in the ratio of one to one, to BAX holders on record on June 17, 2015. That means, if you want to receive the Baxalta dividend, you need to buy the stock this week (on or before June 12).

The Baxalta Spinoff

By Ilene with Trevor of Lowenthal Capital Partners and Paul Price

In its recent filing with the SEC, Baxter provides:

“This information statement is being ...



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Mapping The Market

An update on oil proxies

Courtesy of Jean-Luc Saillard

Back in December, I wrote a post on my blog where I compared the performances of various ETFs related to the oil industry. I was looking for the best possible proxy to match the moves of oil prices if you didn't want to play with futures. At the time, I concluded that for medium term trades, USO and the leveraged ETFs UCO and SCO were the most promising. Longer term, broader ETFs like OIH and XLE might make better investment if oil prices do recover to more profitable prices since ETF linked to futures like USO, UCO and SCO do suffer from decay. It also seemed that DIG and DUG could be promising if OIH could recover as it should with the price of oil, but that they don't make a good proxy for the price of oil itself. 

Since...



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Promotions

Watch the Phil Davis Special on Money Talk on BNN TV!

Kim Parlee interviews Phil on Money Talk. Be sure to watch the replays if you missed the show live on Wednesday night (it was recorded on Monday). As usual, Phil provides an excellent program packed with macro analysis, important lessons and trading ideas. ~ Ilene

 

The replay is now available on BNN's website. For the three part series, click on the links below. 

Part 1 is here (discussing the macro outlook for the markets) Part 2 is here. (discussing our main trading strategies) Part 3 is here. (reviewing our pick of th...

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Help One Of Our Own PSW Members

"Hello PSW Members –

This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible.  Feel free to contact me directly at jennifersurovy@yahoo.com with any questions.

Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts.  After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.)  Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.

http://www.youcaring.com/medical-fundraiser/help-get-shadowfax-out-from-the-darkness-of-medical-bills-/126743

Thank you for you time!




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