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Nicholas Colas (Chief Market Strategist): 212 448 6095 or [email protected] Clark: 212 448 6085 or [email protected]
Beth Reed: 212 448 6096 or [email protected]
The entry of big-box retailers/membership clubs and the consolidation of regional supermarkets over the past 10-15 years have transformed the wayfood goes to market in the U.S. Yes, we saw the notice that Wal-Mart is raising prices in the press yesterday morning. We have seen the same headlinepretty much every 5-7 years, invariably on the way to lower prices.
Consumers have more choices in terms of price points, serving quantities, and product variety. Even when prices do rise, they have more options to eitherscale back (spend less) or scale over (buy in bulk or private brand). That lessens the impression that there is rampant food inflation.
There are probably other reasons, but you get the idea -something structural has clearly occurred, and nothing short of rampant food inflation is likely to reallyshock the American consumer into thinking that overall price levels are set to rise. Follow that thread down one more level, and it points to a greater threat ofdeflation. Food prices do tend to rise over time; remember our Twinkie example. If Americans have stopped thinking of rising food prices as an anchor for system-wideinflation, then one more support for inflationary expectations seems to have eroded.
We are not ringing the alarm bell just yet, but this is something to watch. There are simply very few anchors to the inflation story. Housing (40% of the CPI)? Nope.Food (15%)? Not so much, as we have just seen. That is over half the CPI right there. And if consumers are so inured to food price volatility that they feel safe ignoring it,then deflationary consumer sentiment may be closer than at any point in the past 30 years.
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Nicholas Colas (Chief Market Strategist): 212 448 6095 or [email protected] Clark: 212 448 6085 or [email protected]
Beth Reed: 212 448 6096 or [email protected]
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Jan-79
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UMichg
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Food Inf lat ion vs Consumer Inf lat ion Ex pectat ions: 1979-1989
CPI Food Y/Y Monthly % Change, NSA U Mich Inflation Expectations
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Food Inf lat ion vs Consumer Inf lat ion Ex pectat ions: 2001-Jan 2010
CPI Food Y/Y Monthly % Change, NSA U Mich Inflation Expectations
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Nicholas Colas (Chief Market Strategist): 212 448 6095 or [email protected] Clark: 212 448 6085 or [email protected]
Beth Reed: 212 448 6096 or [email protected]
5-Year Price Charts for Select Food CommoditiesCorn Soybean
Wheat Rice
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Nicholas Colas (Chief Market Strategist): 212 448 6095 or [email protected] Clark: 212 448 6085 or [email protected]
Beth Reed: 212 448 6096 or [email protected]
U.S. EQUITIES
Research company IT jumped 10.5% as it increased its 2010 earnings forecast, while FOSL added 7.9% to reach its highest ever intraday price after itpredicted Q3 profit would exceed analysts current estimates. RIMM added 1.1% after it got a reprieve from a threatened ban on BlackBerry services inSaudi Arabia, and private equity firm KKR (-0.6%) cancelled plans for a $500 million public common offering that it had announced in May. Shares ofsemiconductors faltered as Barclays downgraded INTC (-4.0%) and AMD (-8.0%) to Equalweight from Overweight, citing soft trend in the PC market.NFLX gained 6.9% after reaching an agreement to have certain movies available to customers 3 months after they appear on pay television.
Important Conferences/Corporate Meetings Today:Canaccord Adams Global Growth Conference Boston, MACiti ASEAN Investor Conference - SingaporeJefferies Global Industrial and A&D Conference New York, NY
Morgan Keegan Security and Defense Conference New York, NYMorgan Keegan Technology Conference New York, NYOppenheimer & Co. Telecommunication, Media & Tech Conference Boston, MA
Important Earnings Today (with Estimates) From
Source: Thomson ONE
Three Day (High 1126.75; Low 1110.00):Prior Day SPX (High 1127.16; Low 1111.58; Close 1121.06):
S&P Futures
One Day (High 1124.00; Low 1110.00):
CSCO; $0.37 CSC: $0.90 M: $0.28 SRX: $0.33
TK: $-0.05 Source: Bloomberg
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Nicholas Colas (Chief Market Strategist): 212 448 6095 or [email protected] Clark: 212 448 6085 or [email protected]
Beth Reed: 212 448 6096 or [email protected]
FIXED INCOME
Source: Bloomberg
Todays Important Economic Indicators/Events: MBA Purchase Applications International Trade: $-42.5 billion Treasury Budget: $-170.0 billion
Source: Bloomberg
The Treasurys $34 billion 3-year note auction commanded strong demand, with the bid-to-cover ratio coming in at 3.31, the second highest since thereturn of the 3-year securities to the market. The yield awarded was a record low 0.844%, more than one full basis point below the 1:00 bid. On the lesspositive side, buyside interest was soft with dealers holding 44% of the notes, compared with an average of 38%. At 41%, foreign interest as measuredthrough indirect bidders was below the historical average of 47.6%. Wednesday the government will sell $24 billion of 10-year debt, followed by $16billion in 30-year bonds on Thursday.
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