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Indecision, In-de-flation

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14

September 21, 2010 – Comments (6) | RELATED TICKERS: CAG , GLD , SLV

A couple of headlines jumped out from the WSJ during my morning scan today.  One on Conagra earnings and one on steel prices.  TMFDeej beat me to the punch, but might as well toss in my 2-cents.

The WSJ reported that Conagra earnings fell 12%.  The drop was partly blamed on "..ConAgra's commodity costs climbed more than 5% in the quarter, more than the 4% executives had expected."  In addition to the rising commodity costs, CAG wasn't able to pass the cost increases along to consumers and consumers were buying more of its less expensive products and less of its more expensive products.

Commodities up - inflationary, held in check at the consumer level for now by the inability to raise prices.

The related headline that grabbed my attention was Steel-Price Rise Defies Forecasts. The headline makes a pretty good summary; steel prices were expected to stay weak, but are rising instead.

Add in new 52-week highs for GLD and SLV and I think the inflationistas win the headline wars for today.

About the biggest deflationary news was long bonds trading up in price/down in yield.  However, fellow Fool zloj has the most likely explanation for that - the Fed is ready to go back to quantitative easing, i.e. snapping up Treasuries with printed money faster than my dog snaps up scraps of ham.

I don't know who wins the inflation-deflation fight near term, but long term I don't see any way the dollar doesn't get devalued further versus real assets.  It might hold up well against other currencies, but that's only because those central banks are busy printing money too.

Disclosure:  No position in GLD, SLV or CAG.  I'm not an economist, but occaisionally try playing one on CAPS.

Fool on!

Russ 

6 Comments – Post Your Own

#1) On September 21, 2010 at 7:37 PM, dbjella (< 20) wrote:

I have stated this before, but how do economist define a 20% cut in wage while prices for most things remain flat?  For me, I am SOL, but collectively this is what has happened.   

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#2) On September 22, 2010 at 12:27 AM, TMFBabo (100.00) wrote:

Regarding the steel price increases: ArcelorMittal said in its Q2 earnings call that iron ore prices have been rising and it's trying to pass the costs onto its customers.  Nucor said in its Q2 earnings call that input scrap prices rose, but selling prices rose faster. 

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#3) On September 22, 2010 at 9:26 AM, rofgile (99.32) wrote:

All the rising prices of commodities should be good for the dry shippers right?  These rising prices should mean higher demand, and more raw materials moving around, which should lead to higher shipping rates..?

 -Rof

 (Long several dry shippers) 

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#4) On September 22, 2010 at 1:34 PM, TMFBabo (100.00) wrote:

@rofgile: If inflation is the reason for the price increases, then the tons shipped might be the same, meaning the dry bulk shippers are unaffected.  I believe that steel capacity and electric utility run rates are more important to track.  Increases in utilization would increase inputs of coking coal, thermal coal, and iron ore. 

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#5) On September 22, 2010 at 5:48 PM, outoffocus (23.09) wrote:

Stagflation is winning and has been for quite some time.  The reason why no one notices it is because we are too busy looking for "70s style" stagflation when we should be looking for "new millenium" style stagflation (e.g. falling asset prices, rising commodity prices).

I'm sure the one of those government agencies will pick up on someday...in like 10 years.

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#6) On September 22, 2010 at 10:15 PM, rd80 (98.29) wrote:

@rofgile - The WSJ article on steel says steel output in China is expected to drop by 3-5% and that reduced supply is what's driving the price increase.  If correct, China cutting steel production wouldn't seem to be good for dry shippers.

The same article quotes Lakshmi Mittal, CEO of ArcelorMittal, "China has significant steel-intensive growth ahead."  Which would be bullish for shippers bringing iron ore and coking coal to China.

Wish I could be more help.

Thanks to all for the comments. 

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