People keep talking about deflation, but inflation is everywhere you look
September 21, 2010
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I have been in the camp of people who don't believe that we are in any immediate danger of the rapid inflation or even hyperinflation that so many people have been talking about for a while now.
Having said that, everywhere I turn I see signs of inflation...particularly in the world of commodities. Take a look at these headlines:
Global shortage sees cotton reach 15-year high
...Coffee Prices Soar
Corn prices hit highest levels since 2008
It's not just cotton, corn, and coffee prices that are soaring...prices of palm oil, cocoa, wheat, sugar, beef, and a whole host of other agricultural commodities are sitting at levels that are significantly higher than they were a year ago. While the prices of most of these items are nowhere near as high as they were during the great commodities explosion of 2008 the year-over-year increase that they are experiencing will likely begin to act as a major headwind for the earnings of any company that uses them as an input.
Just look at what happened to the food producer ConAgra (CAG) when it published its quarterly results this morning:
ConAgra Profit Falls 12% Amid Discounting, Rising Costs
Many packaged-food makers are striving to attract frugal consumers with discounting, but sales of pantry staples like soup and cereal have been tepid. For years, consumer packaged goods companies offset pressures from commodity costs by raising their own prices, but with consumer spending weak, increasing brand prices has become harder despite recent spikes in raw materials like grains and proteins.
Food companies' input costs are rising and the new, more-frugal consumer is fighting price increases. That doesn't bode well for the bottom lines of many companies, perhaps including Kellogg (K), General Mills (GIS), Kraft Foods (KFT), and Sanderson Farms (SAFM). Some of these companies, particularly General Mills and Kraft are fairly well run and would make solid long-term investments, but I personally would lean towards staying away from them now and adding shares on any weakness.
Back to the inflation question. Even the gold bugs' beloved yellow metal continues to set new records:
With the prices of so many things skyrocketing, black gold curiously continues to flounder:
One would think that oil would move in tandem with the prices of other commodities. Seeing the fundamentals for oil, in terms of supply vs. demand and a slow economic recovery, and always looking for an opportunity to short an ultra-long anything I gave the old thumbs down to DIG in CAPS a little while ago. I just find it curious that everything in the world seems to be getting more expensive other than oil and natural gas. Perhaps their weakness is reflective of peoples' impression that the economy is still extremely slow.
Deej
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