Inflation may be forcing China to let its currency appreciate

In “Beijing turns to currency to cool inflation“, the Associated Press gives a good summary of China’s current problems with inflation, including the following:

“Economists blame China’s inflation on the dual pressures of consumer demand that is outstripping food supplies and a bank lending boom they say Beijing allowed to run too long after it helped the country rebound quickly from the 2008 global crisis.

Attempts at price controls, subsidies for the poor and orders to local leaders to guarantee adequate vegetable supplies have had mixed results.”

The failure to control inflation to-date is forcing China to allow the currency to appreciate faster. The near-term increases still seem modest at 5% (against the dollar), so it will be interesting to see whether China continues pushing harder on non-currency methods.

China’s currency is not traded on open markets, but if it were, it seems the currency would soar given current conditions.

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Deltic Timber riding all-time highs despite declines in lumber prices

Deltic Timber (DEL) reported earnings earlier this week that were severely down year-over-year. DEL, a $844M market cap company based in Arkansas, blamed a depressed housing and construction market that has forced timber prices lower.

Here is the related commentary from the press release:

“Lumber prices in 2010 [benefited] from a supply-side driven price increase primarily caused by a sawmill log supply shortage due to inclement weather in the southeast portion of the U.S…

…[There are] continued depressed economic conditions for the forest and building products and residential and commercial real estate development businesses. We remained profitable even with persistent record-low prices for pine sawtimber, lack of the usual spring building-season benefit to lumber prices, continuation of a depressed residential real estate market, and absence of a commercial acreage real estate sale.”

The average sales price for pine sawtimber remained level at $26/ton with last year’s first quarter. Pine pulpwood plummeted over this same period by 50% to $8/ton. Average lumber sales price fell 14% over this period to $266 per thousand board feet. No forecasts were provided for future prices.

One of the few areas of the economy the Federal Reserve has failed to inflate continues to be mired in recession-like conditions. Thus motivating the Fed to continue to be accomodative in its monetary policy. On the other hand, these depressed conditions have not prevented Deltic’s stock from performing well. Stocks have, of course, well-benefited from the Fed’s printing of money. Corporate profits are now at all-time highs and DEL expects to turn in good profit performance going forward.

Despite poor market conditions, Deltic Timber's stock is at all-time highs

Despite poor market conditions, Deltic Timber's stock is at all-time highs


Whirlpool passes higher costs to customers

Whirlpool (WHR) reported earnings yesterday and indicated that the company is sticking by its full-year guidance despite increasing cost pressures. WHR has been able to pass some of these costs to its customers through price increases:

“Despite a substantial increase in material and oil-related cost inflation, we are maintaining our full year earnings and cash flow outlook…We have implemented cost-based price increases in many regions around the world, continue to introduce a strong cadence of innovative new products and remain focused on accelerating our cost reduction and productivity improvements to manage higher material cost inflation.”

Whirlpool's stock has made very litle progress since a rapid recovery in 2009

Whirlpool's stock has made very litle progress since a rapid recovery in 2009

Disclosure: author owns WHR


The U.S. Dollar Can’t Find A Bottom

CNBC reported that “Adjusted For Inflation, Dollar Hits Fiat-Era Low.” Economists at Deutsche Bank calculated the value of the dollar on a trade-weighted basis and then made adjustments for inflation. Their conclusion is that the dollar is at its lowest point since the U.S. went off the gold standard under President Richard Nixon.

The full article is worth a read but here is a key quote:

“The recent parabolic spike in silver and to a lesser degree gold, shows that the market considers a ‘disorderly decline’ of the U.S. dollar an increasing possibility…”

Gold has trended straight up since its recession lows

Gold has trended straight up since its recession lows


Source: stockcharts.com

Click here to see how the U.S. stock market remains in an 11-year sell-off when priced in gold.

Gold also looks to continue higher. According to a recent article in Bloomberg:

“Central banks that were net sellers of gold a decade ago are buying the precious metal to reduce their reliance on the dollar as a reserve currency, signaling demand that may extend a record rally in prices.”

Silver's rise has accelerated over the past year

Silver's rise has accelerated over the past year


Source: stockcharts.com

Disclosure: author owns GLD, PAAS


Panera Bread expecting just modest inflation in second half of 2011

Panera Bread (PNRA) will be raising prices and expects the increases to stick. In narrowing guidance for sales growth from 4.0% to 6.0% to 5.0% to 6.0%, PNRA stated the following:

“This target assumes transaction growth of 2.5% to 3.5% and average check growth of approximately 2.5%. The increased average check growth target is primarily a result of an incremental 1.0% price increase the Company intends to take to offset increased inflation in the latter part of 2011. The incremental price increase and increased inflation are expected to offset each other at the operating margin line and have no impact on the Company’s earnings per diluted share target.”

PNRA is one of the best run operations in the casual dining segment, so it is no surprise they have been able to manage costs and pass along price increases without skipping a beat. The stock has been making fresh all-time highs for almost a year now.

Panera Bread bounced back from the recession quickly and strongly

Panera Bread bounced back from the recession quickly and strongly


From the baby’s room to the bathroom to the kitchen, Proctor & Gamble raises prices

In a refrain similar to Kimberly-Clark’s lamentations, Proctor & Gamble (PG) announced an increase in prices in some paper-based products in response to rising pulp, oil, and gasoline costs. In “P&G raising some prices for retailers“:

“P&G said list prices for Pampers are up 7 percent on average, Pampers wipes up 3 percent, and Charmin and Bounty products up 5 percent. P&G said Luvs, its lower-priced diaper brand, remains unchanged.”

Proctor & Gamble's stock has not made any progress for over 18 months

Proctor & Gamble's stock has not made any progress for over 18 months

Disclosure: author is long PG


Kimberly-Clark Keeps Hiking Prices

A little over a month ago, Kimberly Clark (KMB) announced it was raiding North American nurseries and bathrooms with price increases:

“[The] baby and child care and consumer tissue businesses are notifying customers of plans to raise prices in North America during the second and third quarters of 2011…

…Net selling prices in the U.S. and Canada for Huggies baby wipes and diapers, Pull-Ups training pants and GoodNites youth pants will increase on average between 3 and 7 percent, with implementation timing ranging from June 19, 2011 to August 17, 2011. In addition, net selling prices in the U.S. for Cottonelle and Scott 1000 bathroom tissue will increase approximately 7 percent, effective June 19, 2011. The price changes vary by brand and pack size.”

KMB blamed, you guessed it, the rising costs of commodities and raw materials. In today’s earnings release, KMB increased its inflation expectations:

“Inflation in key cost inputs of $450 to $550 million compared to the previous assumption of $200 to $250 million. This reflects estimated average market pricing for benchmark northern softwood pulp of $1,000 to $1,020 per metric ton and average oil prices of $100 to $105 per barrel for the year. The increased inflation assumption is primarily due to higher costs for virgin pulp, polymer resin and most other oil-based materials. “

From the earnings conference call (following quotes from Seeking Alpha transcripts):

“Clearly, the environment is much more challenging since we talked to you last at the beginning of this year. Market pulp costs did not fall in the first quarter like we and most others had assumed. Instead, costs rose in March, and over the next few months, are likely to hit or potentially even exceed the peak levels that occurred last summer.

In addition, as we all know, oil prices have risen rapidly to over $100 a barrel, this is well above what we planned for and it’s caused prices for many of our oil-based cost inputs to increase considerably. For example, polymer costs are up about 20% both year-over-year and sequentially from the fourth quarter of 2010. Similarly, superabsorbent costs are up 15%, and costs for both of these key materials are expected to increase further in the near term.”

During the earnings conference call, KMB made it clear that they are taking a multi-faceted approach to addressing their inflation problem:

“We’re responding to the significant pickup in cost inflation in three primary ways: First, we’re raising selling prices across a number of our businesses; second, we’re accelerating or implementing additional FORCE cost savings programs; and third, we’re focused on managing our overhead spending aggressively.”

In addition to March’s announced price hikes, KMB will be taking pricing actions worldwide:

“We’re also in the process of raising prices in many areas of K-C International, particularly in Latin America.

And our B2B businesses are also taking pricing action, including a North American K-C Professional price increase that we announced last week. So as a result, we now anticipate that price and mix improvements will deliver 1 to 2 points of revenue growth in 2011. That’s up from our original assumption of about 1%.”

It seems there more and more upward pricing pressures are surfacing for the Federal Reserve to dismiss. Investors did not dismiss the bad news, sending KMB down 2.7% on the day.

Kimberly-Clark's stock dropped on the earnings news, but it is still up for the year

Kimberly-Clark's stock dropped on the earnings news, but it is still up for the year