Signs, signs, everywhere a sign

A bevy of new earnings reports brings interesting news about the state of the economy:

  • “Colgate 3Q profit rises 18% amid higher prices, prior-year charges.”
  • “Lower costs and higher prices help [glass manufacturer] Owens-Illinois.”
  • “Panera Bread 3Q profit climbs on higher prices.”
  • “Higher selling prices and lower commodity costs boost Kimberly-Clark’s 3Q profit.”
  • “Coca-Cola Enterprises Inc.’s third-quarter earnings rose 15%, helped by continued strong growth in Europe and price increases that boosted margins.”
  • “Swedish home-appliances maker Electrolux AB Monday posted a stronger-than-expected 93% rise in third-quarter net profit on the back of cost cuts, higher prices and lower raw-material costs…”
  • “Philip Morris, Reynolds beat profit estimates on higher prices.”
  • “Hynix Semiconductor Inc., the world’s No. 2 memory chip maker, reported its first quarterly profit in two years on Friday, bolstered by higher product prices.”
  • “Procter & Gamble Co. reported Thursday first-quarter net income fell 1% as higher prices offset a decline in sales volume and currency translations.”

Notice a pattern here?

More:

  • “Samsung Electronics Co., Asia’s biggest maker of chips, flat screens and mobile phones, said profit tripled to a quarterly record as the global economic recovery spurred a rebound in prices.
  • “Chocolate maker Hershey Co., helped by price increases and lower costs, reported Thursday that third-quarter profit rose 30% from last year and its raised its full-year profit outlook.”

IndexIQ launches inflation-hedged exchange-traded fund

This week, IndexIQ introduced  the IQ CPI Inflation Hedged ETF (ticker: CPI). The purpose of the fund, I gather, is to provide returns that are highly correlated to the consumer price index.  More information here.


Report: homebuyer tax credit to be phased out; Update: Never mind?

According to Calculated Risk, “[t]he Reid/Baucus proposal is to extend the tax credit and phase it out over 2010. The credit would be $8,000 through the end of Q1 2010, and decline $2,000 per quarter after that … ($6,000 in Q2, $4,000 in Q3, $2,000 in Q4 2010).”

This comes as a pleasant surprise. I had expected concerns about the housing market to trump concerns about the deficit and national debt.

Relative to an expansion or extension of the credit, the Reid-Baucus  proposal presumably will put downward pressure on housing prices. Assuming this proposal becomes law, the most likely scenario (in my view) is stable or gently rising home prices, particularly among low-end homes where demand in many cities is ridiculously strong.  However, even an inflation hawk like me has to acknowledge the possibility that the combination of increased foreclosures and the phasing out of the tax credit will result in renewed housing price deflation. There is enormous uncertainty here.  Much will depend on the macroeconomic environment (e.g., the unemployment rate) a year from now.

Update (10/27): Never mind?:  Home Buyer Tax Credit to be Extended and Eligibility Expanded. I should have known better than to think that sound policy would trump political considerations.


TIPS bonds continue to outperform long-term treasuries

As of this afternoon, the iShares Barclays 20+ Year Treasury Bond Fund (ticker: TLT) is down 21.5 percent year to date and is down 4.3 percent in the past month. Here’s a chart showing TLT’s performance during the last two months:

TLT chart

By contrast, the iShares Barclays TIPS Bond Fund (ticker: TIP) is up 3.5% year to date and is up 0.4% in the past month. Here’s a chart showing TIP’s performance during the past two months:

TIP chart

TIPS bonds protect investors against inflation, whereas traditional treasury bonds do not. The divergence in the performance of these two exchanged-traded funds is a clear indication that treasury bond buyers are increasingly worried about inflation.


Live in Chicago? Get ready to pay more for your water.

Hot on the heels of privatizing parking meters, Chicago mayor Richard Daley is reportedly mulling a similar deal for Chicago water:

If the parking meter deal put a bad taste in your mouth, try swallowing this:  Chicago is considering leasing its water system to help fix the budget. The new boss could charge whatever they want for water, CBS 2’s Roseanne Tellez reports.

Chicagoans won’t be the first to pay more for water. And they won’t be the last.

Hat tip: mm.com.


Gas prices up nearly 18 cents per gallon in past 2 weeks

CNN Money:

Gasoline prices jumped nearly 18 cents over the past two weeks, the first two-week rise since early August, according to a survey published Sunday.

The average price of a gallon of self-serve regular was $2.655 as of October 23, said Trilby Lundberg, author of the Lundberg Survey. Since the October 9 survey, the average price per gallon has climbed by 17.82 cents. The current price is 12.3 cents less than the price a year ago.


Survey: U.S. companies plan to hire in 2010; have already been raising prices

Bloomberg:

For the first time in a year, U.S. companies are planning to boost payrolls and investments, indicating the nascent economic recovery will be sustained into 2010, a private survey showed.The percentage of businesses expecting to hire staff over the next six months exceeded the share projecting more firings by 4 points, the first positive reading since July 2008, according to figures from the National Association for Business Economics issued today in Washington. The spread in favor of those looking to spend more on new equipment was even larger.

The survey also showed that companies have begun raising prices of their products:

[P]rice increases are starting to become more prevalent as demand improves. Twenty-three percent of the companies surveyed by NABE this month said they raised prices since the prior survey, up from 8 percent in July. Just one out of every 10 said they had to cut what they charged customers, down from two out of 10 three months ago.