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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ValueWalk

Coronavirus stimulus check 2: Get it together, Congress

By Michelle Jones. Originally published at ValueWalk.

Many Americans are waiting for coronavirus stimulus check number 2, and the June jobs report caused some to think there won’t be one. However, it sounds like a second round of IRS stimulus checks is still possible. In fact, we might even be able to say that it’s likely.

Q1 2020 hedge fund letters, conferences and more

Mixed unemployment numbers

The Department of Labor showed that the U.S. economy added 4.8 million jobs last month, which is the largest increase ever recorded. ...



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Zero Hedge

"Panic-Driven Hoarding Of Bank Notes": People Aren't Abandoning Cash During The Pandemic, They're Socking It Away

Courtesy of ZeroHedge View original post here.

Habits change in the midst of a global recession, not to mention a global pandemic. We have already looked at how the pandemic has caused seismic shifts in many industries, but it is also causing a shift in how people think about, handle and (in this case) hoard cash. 

While we have been told non-stop that the pandemic is going to prompt the demise of paper currency and the words "digital dollar" continue to make appearances in government white papers and studies, the Bank of England found that there was a...



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Phil's Favorites

Coronavirus deaths and swelling public sector debt share a data-quality problem

 

Coronavirus deaths and swelling public sector debt share a data-quality problem

Different countries report coronavirus data differently. Shutterstock.com

Courtesy of Marion Boisseau-Sierra, Cambridge Judge Business School

Watching scientists, politicians and journalists struggle to compare national death rates from the coronavirus pandemic, I had an acute case of déjà vu. Though the virus may be novel, the confusion generated by inconsistent data standards is anything but. It’s something I&...



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Biotech/COVID-19

Coronavirus deaths and swelling public sector debt share a data-quality problem

 

Coronavirus deaths and swelling public sector debt share a data-quality problem

Different countries report coronavirus data differently. Shutterstock.com

Courtesy of Marion Boisseau-Sierra, Cambridge Judge Business School

Watching scientists, politicians and journalists struggle to compare national death rates from the coronavirus pandemic, I had an acute case of déjà vu. Though the virus may be novel, the confusion generated by inconsistent data standards is anything but. It’s something I&...



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Chart School

Golds quick price move increases the odds of a correction

Courtesy of Read the Ticker

Every market corrects, maybe profit taking, maybe of allowing those who missed out, to get in!


The current open interest on the gold contract looks to high after a very fast price move, it looks like 2008 may be repeating. A quick flushing out of the weak hands open interest may take place before a real advance in price takes place. The correction may be on the back of a wider sell off of risk assets (either before of after US elections) as all assets suffer contagion selling (just like 2008).

This blog view is a gold price correction of 10% to 20% range is a buying opportunity. Of course we may see  a very minor price correction but a long time correction, a price or time is correction is expected, we shall watch and...

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The Technical Traders

Wild Volatility Continues As US Markets Attempt To Establish New Trend

Courtesy of Technical Traders

We’ve continued to attempt to warn investors of the risks ahead for the US and global markets by generating these research posts and by providing very clear data supporting our conclusions.  Throughout the entire months of May and June, we’ve seen various economic data points report very mixed results – and in some cases, surprise numbers as a result of the deep economic collapse related to the COVID-19 virus event.  This research post should help to clear things up going forward for most traders/investors.

As technical traders, we attempt to digest these economic data factors into technical and price analysis while determining where and what ...



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Kimble Charting Solutions

Nasdaq 100 Relative Strength Testing 2000 Highs

Courtesy of Chris Kimble

The tech bubble didn’t end well. BUT it did tell us that the world was shifting into the technology age…

Since the Nasdaq 100 bottomed in 2002, the broader markets have turned over leadership to the technology sector.

This can be seen in today’s chart, highlighting the ratio of Nasdaq 100 to S&P 500 performance (on a “monthly” basis).

As you can see, the bars are in a rising bullish channel and have turned sharply higher since the 2018 stock market lows. This highlights the strength of the Nasdaq 100 and large-cap tech stocks.

...

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Lee's Free Thinking

These Charts Show COVID 19 Is Spreading in the US and Will Kill the Economy

 

These Charts Show COVID 19 Is Spreading in the US and Will Kill the Economy

Courtesy of  

The COVID 19 pandemic is, predictably, worsening again in much of the US. Only the Northeast, and to a lesser extent some Midwestern states, have been consistently improving. And that trend could also reverse as those states fully reopen.

The problem in the US seems to be widespread public resistance to recommended practices of social distancing and mask wearing. In countries where these practices have been practi...



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Digital Currencies

Blockchains can trace foods from farm to plate, but the industry is still behind the curve

 

Blockchains can trace foods from farm to plate, but the industry is still behind the curve

App-etising? LDprod

Courtesy of Michael Rogerson, University of Bath and Glenn Parry, University of Surrey

Food supply chains were vulnerable long before the coronavirus pandemic. Recent scandals have ranged from modern slavery ...



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Members' Corner

Coronavirus, 'Plandemic' and the seven traits of conspiratorial thinking

 

Coronavirus, 'Plandemic' and the seven traits of conspiratorial thinking

No matter the details of the plot, conspiracy theories follow common patterns of thought. Ranta Images/iStock/Getty Images Plus

Courtesy of John Cook, George Mason University; Sander van der Linden, University of Cambridge; Stephan Lewandowsky...



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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
...

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Feb. 26, 1pm EST

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Phil will discuss positions, COVID-19, market volatility -- the selloff -- and more! 

This week, we also have a special presentation from Mike Anton of TradeExchange.com. It's a new service that we're excited to be a part of! 

Mike will show off the TradeExchange's new platform which you can try for free.  

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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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