THE HOUSE OF UNINTENDED CONSEQUENCES

We continue to see some pretty spectacular moves in agricultural commodities, which have been triggered by adverse weather events around the world that have caused production shortfalls.  At the same time the free monies policies of the Federal Reserve are leading to increased speculation in commodity markets.  This is similar to the scenario that unfolded in 2007 when the Federal Reserve began to cut rates and flood the system with liquidity in response to the subprime crisis.

 

The unlimited supply of money (including derivatives) created by the Fiat Fools can dwarf the limited supply of hard commodities.  We are seeing that occur right now with the price of food stuffs, as represented by the CRB Foodstuffs Index, reaching new highs in terms of year-over-year growth. 

 

How is this consistent with the Federal Reserve dual mandate of full employment and price stability?

 

The unintended consequence here is that the restaurant industry is going to feel margin pressure in the not-too-distant future.  The last time corn was at $6, Casual Dining margins were over 200 basis points lower than they were in 2Q10!  Additionally, news that the EPA is expected to sign off on higher concentrations of ethanol in gasoline for newer vehicles, raising the maximum blend from 10% to 15%, is further supportive of corn prices.

 

Consumers on Main Street might get the complexities of derivative markets, but they do understand the ramifications of paying higher prices food and gas.

 

THE HOUSE OF UNINTENDED CONSEQUENCES - crb foodstuffs vs cd lag

 

Howard Penney

Managing Director

(

 

 

 


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more