"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput

Trader Dan's free work will soon be available at www.traderdan.biz

Wednesday, February 9, 2011

Chairman Ben's Big Day

In watching the testimony and question and answer session involving Fed Chairman Ben Bernanke, (more on this later), I continue to marvel at his insistence that inflation is not a problem nor has it resulted from his Fed's QE policies. About the same time that his Da Niles were reaching Pinnochio levels, this story came down the Dow Jones newswire. Keep in mind that the commodity price charts, and the CCI in general, contradict his assertions and as I have said many times, the charts do not lie but are brutally realistic.

Please note the paragraph I have underlined for emphasis sake. Even though the story is out of London and is detailing what is transpiring across the Pond with those companies, the exact same thing is occuring over here.

I found it particularly interesting that the US firm, Kraft Foods, is dealing with the surge in commodity prices by shrinking the size of one of their products. That reminds me of what occured years ago - Remember those old 5 pound bags of sugar that went to 4 pound bags? I wonder if they are now going to go to 3.5 pounds or less?

That the Chairman continues to assert that inflation is not a problem is downright ludicrous and strikes me as being disingenous.

I will have more on all of this on my blog at:


DJ Consumer Goods Giants Forced To Act As Commodity Costs Rise

Wed Feb 09 11:27:56 2011 EST

  By Simon Zekaria


  LONDON (Dow Jones)--Major consumer goods companies are being forced to
reassess their business models in the face of soaring commodity costs as they
attempt to minimize damage to profit margins and scale back losses.

  Whether through raising prices, cutting costs, adjusting product size or
altering ingredient mix, companies such as Unilever PLC (ULVR.LN), Reckitt
Benckiser (RB.LN) and Kraft Foods Inc. (KFT) are all having to take action as
rising input costs show no sign of abating.

  As escalating costs have hit all categories of commodities, no single company
is better placed than another, so their differing strategies will be under
close scrutiny.

  "It is similar across the board. Looking at coffee, cocoa, the oil
price--everything has gone up significantly and most are back at 2008 levels.
On commodity prices, they all tend to drag on each other," Espirito Santo
Investment Bank analyst Martin Dolan said Wednesday.

  Dolan said that lack of clarity on strategic hedging makes it hard to clarify
the differing potential impact on individual companies and their ability to
respond to market fluctuations. "What we don't have a handle on is whether
anyone is hedged better than anyone else. Probably, they are covered in margin
terms for the first half, but after it is difficult to assess," he said.

  Unilever PLC (ULVR.LN), the Anglo-Dutch maker of Ben & Jerry's ice cream, and
Reckitt Benckiser (RB.LN), producer of Lysol disinfectants, are taking on
inflationary headwinds by innovating and streamlining packaging, ramping up
savings plans by paring logistical and purchasing costs, and selectively
increasing prices across favorite food, personal care and household product

    Unilever said last week that it has no plans to reduce the size of its
products, following reports that U.S. rival Kraft Foods Inc. (KFT) has chosen
to combat rising ingredient costs by cutting the size of its Cadbury Dairy Milk
chocolate bar rather than raising prices.

  Unilever predicted a 400 basis point hit to full-year margin due to
escalating commodity costs while U.S. rival Procter & Gamble (PG) said earlier
this month its commodities bill will total $1 billion for the year to the end
of June, more than double expectations.

  Analysts warned that Unilever should be mindful of worsening conditions to
come. "With Unilever struggling for margin in the face of what we think are
only the foothills of input cost inflation, we expect even bigger challenges
when it faces the peaks to come," said Martin Deboo of Investec Securities.

   Reckitt Benckiser's more limited exposure to costs related to food products
does not mean it has an easier ride as "its costs (are linked to) the oil price
and oil price derivatives," said Espirito Santo's Dolan.

  Earlier Wednesday, Reckitt Benckiser, the Slough, U.K.-based maker of Lysol
disinfectants, Clearasil spot cream and Finish dishwasher powder, as well as
French's Yellow Mustard, said its gross margins fell 80 basis points in the
fourth quarter on higher promotional spend and as cost inflation took effect.

  "(Costs) are a concern and a challenge for all companies in the industry. We
have key raw materials that are going up. (Costs) will not be eliminated, but
we have programs to neutralize the impact," Chief Executive Bart Becht said.
These include paring logistics, sourcing and purchasing costs.

  At 1543 GMT,  Unilever was flat at 1826 pence, while Reckitt Beckiser, which
underwhelmed investors with its fourth-quarter results, was down 172 pence, or
5%, at 3273 pence, the biggest faller on the FTSE 100.

  By Simon Zekaria, Dow Jones Newswires; +44 207 842-9410;

  (END) Dow Jones Newswires

  02-09-11 1127ET

  Copyright (c) 2011 Dow Jones & Company, Inc.

1 comment:

  1. Dan,
    I was wondering what are your thoughts on the following paper:


    From the paper:

    it is critical to recognize that the injection of reserves is not the cause of greater loan issuance, it is the consequence. In other words, the Fed is following the expansionary activities of the banks, rather than leading them.

    As in, the bad credit created in the first place lead to the increase in money supply by the Fed.
    So this commodity price increase may just be due to the fear of inflation, rather than actual inflation - per the argument above.

    Would you say this is true? I would like to hear your point of view on the line of argument presented in the paper. - Thanks.


Note: Only a member of this blog may post a comment.