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You Can't Eat Aluminum!

Aluminum hit an all time high on $3,380 a ton on the LME this morning. As usual, the full details of the supply disruption in China took some time to emerge -in this case it has been smelters in Shanxi reined in by an overstretched power grid.

There have been a series of smelters idled by lack of power recently (particularly in South Africa) but this work halt is particularly emblematic of the global inflation dilemma -reports in the Chinese press indicated that power had to be diverted for agricultural production. You can't eat aluminum.

Andrew Barber
Director

"Is Goldman In Charge?" - Episode 2: Hank Strikes Back!

Ron Paul: Who is charge of the U.S. dollar ?

Hank Paulson: We should give the government temporary emergency authority.... .

Do you recall in Star Wars Episode 2 When Senator Palpatine said the same thing to the Galactic Senate? Then he had sole authority, for which he subsequently used to take over the universe...

In Goldman do we trust? Ask the people living in the state of New Jersey what kind of a job the other recent ex-Goldman CEO, John Corzine, is doing...

Per the South Jersey News: "The Farleigh Dickinson University Public Mind poll found 40 percent approve of the governor's job performance, with 41 percent disapproving. That's down from a 44 percent approval in April and 48 percent in January."

*Full Disclosure: I am still short GS in my fund.
KM

Yo, Mr. Paulson - It's Ron Paul! "Who's In Charge?"

I am sitting here watching an entertaining session of Congress questioning our two compromised representatives of the US Dollar - Paulson and Bernanke.

While Ron Paul has been accused of having lost his marbles as I often have in the last 9 months, he asked THE QUESTION. "Who is in charge of the US Dollar"?

Of course Paulson's answer was fully loaded with both the stutter and lack of content as I am painfully getting used to hearing.

Paul's statement (within his question) included the lack of a US Savings Rate, negative real interest rates, re-regulation, and Federal Reserve inspired inflation.

Sometimes the guys who sound like they have a few screws loose, are the only guys with a screwdriver.

We fix this mess by raising interest rates.
KM

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SBUX - Playing the Value Game

SBUX's Vice President of Customer Relationship Management Brad Stevens posted on the company's My Starbucks Idea website yesterday that a majority of the company's U.S. locations will be offering some sort of deal between now and early September. The promotions will vary by location but include among others reduced prices in the afternoon (with morning receipt) or free 12 oz. iced coffee on Wednesdays. Mr. Stevens said the company is responding to customers' request for everyday value, especially when money is tight.
  • These deals are being introduced to help stop declining traffic, which has been decelerating since 3Q06. In the most recently reported 2Q08, the company did not quantify the traffic decline, except to say that trends had significantly deteriorated from 1Q08's 3% decline.
  • Although I recognize that SBUX must take the necessary steps to improve its traffic trends, these new promotions bring us back to the traffic versus margin question. To that point, Mr. Stevens would not specify whether or how much the value offerings will impact SBUX's profits. Starbucks' FY07 U.S. operating margins were already down 90 basis points YOY and fell to 10% in 2Q08 so margins are already under pressure.
  • Additionally, despite Mr. Stevens saying in an interview the company has no plans to join the likes of McDonald's and Burger King by offering a dollar menu that could clash with Starbucks' luxury image, these types of promotions run the risk of changing the consumer's perception of the SBUX brand. Just as a company can alienate its customer base by abandoning its perceived value messaging, a company can also compromise its brand by trading its customers down as they begin to expect such promotions.

Japanese Stagflation Is Obvious Now...

I know a lot of "value" buyers want to call the bottom in Japanese Equities. I'm always up for buying on sale, just no Japan for me yet, thank you... I'd rather be long Taiwan.

Japan's economic growth is slowing into the head wind of inflation accelerating. This morning's inflation report (PPI for June) came in at +5.6%. That's a 27 year high! Japan's cheap money cycle will continue to haunt their economy until they raise interest rates from where they are now (negative real rates).

Global Stagflation is here.

*Full Disclosure: I am own Taiwan via the EWT country etf as of yesterday.
KM

This Week's Jobless # Shines Light In A Darkening Hole...

The weekly jobless claims # of 346,000 was a big surprise to the positive side versus last week's abysmal 404,000. This actually improves the 4 week moving average for the 1st time since the US market began its latest decline.

Additionally, this morning's June same store sales #'s at US retail were certainly better than toxic.

As the facts change I will, and these 2 facts are better than I was expecting.

Into market weakness, I continue to get longer this morning.
KM

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