So I bought a sack of Halloween candy last weekend, cuz, you know, Halloween is right around the corner, I can’t Trick or Treat anymore (creepy dude!) and I like to get an early start on eating Halloween candy anyway…
It was a Hershey assortment – Payday, Hershey with almonds, Mr. Goodbar, Reese cups, and some new thing called Reese 5 or something like that. I wasn’t really paying attention.
Well, I’ve already eaten all the Paydays, there were like 6 of them in the 50 piece bag. Reese’s – gone too, and there were even less of those. Probably half of what’s left is those Reese’s 5 things – and they are terrible. Basically a chocolate covered very-salty pretzel.
I’ve only eaten one of these abominations and detected not even a hint of a creamy peanut butter center. I won’t be eating another cuz they’re terrible – the rest are going to the kids and hopefully they won’t notice how bad they are and come back and TP my yard, the little monsters.
I realize I have fallen right into the trap, because I’m gonna go out and buy another bag, probably a Mounds/Almond Joy mix. But I will be on the lookout for whatever new crappy candy they try to slip in with the Mounds and Almond Joy’s, cuz I know what they’re doing…
I’ve written before how companies like Hershey and Pepsi have raised their prices on food far beyond the degree to which their input rose because of supply chain issues and producer price inflation. Many of these companies have grown profits even as sales volumes dropped…
I dubbed the phenomena “Artificial Inflation” because that’s what it is – companies, especially food companies, have used the cover of inflation to raise prices far more than what any fundamental cause (like input costs) would warrant.
Plus we now have “shrinkage” too – where packages and the amount they hold has gotten smaller.
As the final insult: these greedy bastards are going after Halloween candy. The Reese’s 5 is an obvious cost saver. Crappy pretzel with a spot of chocolate and no peanut butter, probably costs half what a real Reese Cup costs and then they load the bag with Reese 5s and a token amount of Payday — and Voila! A $10 bag of candy that probably costs 25% less to produce.
Food Monopolies and the Fed
Now of course, you can buy the food companies ahead of their earnings reports, and feel very confident that they will beat estimates and get a pop for their stock prices.
Fortunately, you don’t have to work too hard to find a food stock to buy, they’re aren’t that many:
This graphic shows the reach that just 10 companies have into your grocery store, and into your pocket. Add in Tysons (NYSE: TSN) and Kraft-Heinz (NYSE: KHC), maybe some Campell’s (NYSE: CPB) and Hormel (NYSE: HRL) and you pretty much got the bases covered.
America’s Wild West approach to mergers and acquisitions in the food space has granted virtual monopolies to a handful of companies. And you can’t argue that there is some efficiency or synergies benefit to consumers. Every one of them follows the same “cut costs/raise prices” business model.
Back when Warren Buffett teamed up with Brazil’s 3G Capital to buy out Heinz and then Kraft, they followed the diabolical private equity play book to a tee – fire a bunch of people, sell bonds to raise capital, pay yourself a fat dividend that is effectively generated by the future employment cost savings you get from firing a bunch of people, and then saddle the shareholders with the debt.
Again, nothing to do with efficiencies or synergies, just a money-grab that gets people fired, pure and simple.
I give Buffett some credit for vowing to never work with 3G Capital again. Not that he gave any of the $7 billion or so he earned for Berkshire Hathaway with those deals…
I know that food and energy costs get pulled out of PPI and CPI data so they can focus on the “core” numbers. And I know some people don’t like it, because the average family, food and gasoline are pretty significant expenses and simply ignoring them doesn’t change that effect.
However, if the Fed let food prices influence its assumptions about inflation and interest rate hikes, they are essentially punishing families for corporate food monopoly profiteering. Seems kind of messed up…
And it’s basically the same thing for oil and gasoline prices. War in the Middle east notwithstanding, oil prices are high mainly because Russia and Saudi Arabia have choked off supply for the express purpose of getting oil prices higher.
If the Fed considers higher oil prices as a factor of inflation and rate hikes, aren’t they just letting Russia and Saudi Arabia dictate U.S. monetary policy?
Seems like a bad plan.
The S&P 500 Chart
Shifting gears a little, on Wednesday we took a look at the chart for the S&P 500, yet again –
To recap, the horizontal red line is the current support/resistance pivot point created by the August lows and the post-Fed sell-off that started after the September 20 meeting, indicated by the purple arrow.
On Wednesday, I told you the S&P 500 was likely to drop down for a test of the 200-day Moving Average (black line).
Well, here we are. The 200-day sits at 4,233 today, and the day’s low for the S&P 500 is 4,230.
So what now?
The S&P 500 just tested the 200-day MA at the start of the month. It bounced and things were going swimmingly until war broke out between Israel-Hamas.
But this time? That’s a tough one. October is typically the month when the market finds a bottom and starts a year-end rally. Best guess: the S&P 500 is trying to put in a bottom and we should be looking for opportunity to buy quality.
Keep an eye on AEHR Systems (NASDAQ: AEHR). It’s a chip test equipment company that specializes in testing systems for silicon carbide (SiC) chips. Silicon carbide chips are super heat-resistant, more difficult to make and have high failure rates.
AEHR has a really strong position with its testing solutions. The stock has been crushed from near $50 in mid-September to current prices around $32. Even so, it’s not cheap – trading at 12x sales. But with revenue and earnings growing at a 50% clip, AEHR could really move when the market turns.
I started coverage on AEHR about a year ago, you might find my Special Report on silicon carbide chips useful.
That’s it for me today, take care, have a great weekend and I’ll talk to you Monday.