RSSFriday Notes: Gold, Food Inflation & CNBC
By Chip Hanlon | July 18, 2008 | 2:48 PM | 5 Comments
Price-based demand destruction only occurs in the U.S., some argue. Ok, then what has happened to India's allegedly insatiable appetite for physical gold so far this year? This isn't an argument that gold's going lower because its price is driven by monetary factors, not demand for physical.
What I am pointing out, however, is the idea that demand destruction based on elevated commodities prices only occurs here in the U.S. will be disproved in coming months, if it isn't being so already. In addition to the drop in Indian demand for gold cited above, after copper hit a high in early May Chinese demand for the metal plunged nearly 20% that month. Expect drops in energy demand since China lifted is subsidised gasoline prices by nearly 20% late last month, and jet fuel by 25%. We're seeing destruction here first partly because we have better/more reliable statistical tracking of such things.
This isn't a prediction of total demand collapse, rather a suggestion that a dampening of such demand will occur globally. Indeed, it may actually allow energy prices to correct just a bit further, providing some economic relief-- perhaps around which the next stock market rally will be built.
Food Inflation
Been watching Kraft Foods (NYSE: KFT), Kellogg (NYSE: K) or Tyson (NYSE: TSN) recently? In handily outperforming the market this month, perhaps these and similar stocks are just acting as you might expect from more defensive names, but I suggest there's more at work here.
We've written in the past how consumer foods companies aren't plays on agriculture-- and they aren't. That said, with the bulk of the rise in agricultural commodities prices likely behind us for awhile and with many of the consumer foods companies having already raised prices this year, they should be in for some very easy comps over the next 12 months, at least.
And should ag commodity prices cool even a little bit, these companies could see some impressive margin expansions. I'll write more on this soon because I find it so interesting, but look at packaged foods and livestock companies as potential value plays at the moment.
Pento/GF on CNBC
Our Michael Pento visited Kudlow & Company again yesterday and did another nice job fighting to "keep your money real," as he'd say. I also have to say that GF background looked pretty nice on air! Thanks to all of greenfaucet's new contributors... your valuable essays (along with Jim Slagle's outstanding efforts) are making traffic here skyrocket.
To readers: we'll never include just anyone here, only proven industry, newsletter or trading pros... quality of content, not quantity, is what greenfaucet intends to provide.
Enjoy the weekend!
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