“If history is any guide, this scenario will develop not gradually but abruptly.”
-Barry Eichengreen, (“Exorbitant Privilege” page 165)
Evidently a lot of investors didn’t prepare their portfolios for The Inflation. Some reconciled this mother of all inflation shocks in food prices as “supply and demand” imbalances. Some said everything was going to be fine because The Ber-nank said so. Some even said $4-5 at the pump is fine.
We’ve said that as Global inflation Accelerates, Global Growth Decelerates. This might be a little easier to see when you have a $100 handle on the price of oil per barrel. Inflation is both a policy and a consumption tax. Global inflation is also priced in US Dollars.
Sadly, with stock markets around the world getting rocked this week, the US Dollar continues to be debauched. There was a time when America’s independent price stabilizer (Paul Volcker) treated the US Dollar with respect. Today, our Almighty Central Planners are willing to watch the Buck Burn.
The math doesn’t lie here folks; professional US politicians do. For the week-to-date, here’s your US Dollar/Commodity Inflation score:
Sure, there’s a nut-job out there in Libya, but there’s also a very blunt instrument that can take his grandstanding on “fighting to the last drop of blood” away – a STRONG US DOLLAR policy.
Most American stock market fans definitely don’t want the short-term tough love associated with that. If anything, the perma-bulls are already cheering The Ber-nank on to implement Quantitative Guessing III (QG3) as a weapon against Gaddafi’s self-destruction.
The reality is that if The Ber-nank and Timmy Geithner woke up this morning and unilaterally raised interest rates and took a whack out of this Disaster Deficit, the US Dollar would strengthen and the price of oil would drop in a straight line.
This, of course, isn’t going to happen. Instead we are fostering a finger pointing and unaccountable political leadership class that continues to frustrate Americans to the core.
While Timmy Geithner was self-aggrandizing himself yesterday with his banking cronies from Dollar Destruction Inc., someone asked him what he thought about the price of oil’s impact on the US economy – and I couldn’t make this up if I tried, but he said that the economy that he helped put into crisis (before he helped saved us all from it) “can handle it.”
The Twitter-sphere lit up like a Christmas tree after Timmy said that – and The Rest of The World erupted in laughter. He must have been joking, but Bloomberg reporter Rich Miller didn’t seem to think so - and I couldn’t make this one up if I tried either – as Miller recapped the Geithner Groupthink session yesterday with this morning’s Bloomberg headline:
“GEITHNER BUTT OF JOKES NO MORE AS OBAMA’S MONEY MAN NOW ON TOP”
On top of what? The Disaster Deficit, The Burning Buck, or the resume pile to go join the Pandit Bandit at Citigroup? The manic media pandering to the political winds of Washington, DC access is both frightening and sad. Arianna Huffington, nice sale!
Don’t worry, I can answer the Wall Street question on, “how do you make money on this”? I laid this out in Friday morning’s Early Look note titled “Hawkish Winds” and my Global Macro positioning in being bullish on The Inflation remains the same:
As for managing around the implied mean-reversion risks associated with the institutional investment community in America chasing the “flows” rather than the Global Macro fundamentals, my strategy on US Equities is this – trade them like the Price Volatility Casino that your central bankers sponsor.
After all, as Timmy reminded his fans at the “Bloomberg Breakfast” in Washington, DC yesterday, “central bankers have a lot of experience in managing these things”!
Indeed they do Mr. “Money Man”, indeed.
My immediate term support and resistance levels for the SP500 are 1306 and 1330, respectively. If 1306 in the SP500 doesn’t hold on a closing basis, I think this -3% correction in US stocks starts to resemble a February 2008 like crack. That wasn’t a good crack.
Best of luck out there,
Keith R. McCullough
Chief Executive Officer
The Macau Metro Monitor, February 24, 2011
INCOME SUBSIDY EXTENDED AND INCREASED macaubusiness.com
The government announced yesterday it would extend the income subsidy until the end of this year. The government will raise the limit to MOP4,400 from MOP4,000 to help beneficiaries cope with rising inflation. Last year, around 6,000 people were covered by the income subsidy scheme.
IMPORTED WORKERS GET NEW BLUE CARD macaubusiness.com
Starting on Monday, Macau’s imported workers will get a new blue card, which will allow them to use the automatic border checkpoints for Macau ID holders. Each blue card will cost MOP100. At the end of December, the number of non-resident workers stood at 75,800, up by about 700 people over the previous month.
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In-line quarter with higher ship share in 2010. Expects higher North American replacements but lower expansion units in 2011.
”Our impressive widescreen innovation in North America helped the Group achieve value and share growth in the outright sale segment in 2010, despite a double-digit fall in overall demand. The fee per day performance of our new gaming operations products is also very encouraging, and significantly ahead of the average fee per day performance of our legacy products. Portfolio quality is key to performance improvement. As a result, we expect to continue to see faster progress in those markets such as North America where our turnaround program is more advanced, than Australia and Japan. Momentum is improving across all key markets and by full year 2011, we expect to see consistent evidence of better games and stronger product portfolios delivering tangible value in these markets, whether that’s improvement in average prices, higher fee per day results, stabilizing share numbers or healthier margins."
-Jamie Odell, CEO and Managing Director of Aristocrat
HIGHLIGHTS FROM THE RELEASE
2011 NA Outlook
FY 2010 REVIEW
Fiscal 1Q11 earnings of $0.61 per share came in $0.13 per share better than street expectations (only about a $0.02 per share benefit from a lower tax rate), but the company slightly lowered its full-year EPS guidance to $1.40-1.65 from $1.41 to 1.68. Despite the better-than-expected same-store sales growth of +1.5% at Jack in the Box company restaurants (versus the street’s +1.2% estimate and management’s guidance of -1 to +1%) and the fact that 1Q11 marks JACK’s first quarter of positive comp growth at Jack in the Box after six quarters of decline, investors will likely be disappointed that there is no flow through to guidance from the first quarter earnings surprise.
Although management is likely being cautious, and maybe even practical, it will also be viewed negatively that the company did not raise the low end of its -2% to +2% full-year comp growth guidance at Jack in the Box company restaurants as a -2% result would imply a sequential slowdown in two-year average trends from 1Q11 levels. Given the changes in guidance, higher commodity costs are the primary driver of the lower earnings guidance for the balance of the year.
Below I outline the positive and negative offsets included in the current guidance versus the company’s prior outlook.
We will be back with more details after the company’s earnings call tomorrow.
The overlay of a luxury retailer, a traditional department store, and the world’s largest off-pricer yields an interesting observation. Inventory management relative to sales momentum is still very well controlled in the mall while the y/y improvement at TJX has been sequentially decelerating. Being in-market buying goods at year-end is definitely a factor here, but the multi-year run of taking inventory out of the system and improving turns is going to be incrementally less impactful for TJX in 2011.
Both SKS and DDS still have room to go given both are still in mean reversion mode in their efforts to return to prior peak margins.
Additional TJX thoughts:
The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.