Peek Behind the Numbers's avatar
$10.1m follower assets
Bad news for name brand food companies
$KR CEO said on their recent call-

"Customers are aggressively starting to buy our (generic store) brands. And what they're finding is the quality of that product and there's no compromise with that versus some of the other products."

House brand sales were up 6.3% while same-store sales were up only 4.1%.

Consumers trading down as prices rise and budgets are squeezed is bad news for food name brand food companies like $MDLZ $GIS $CAG $THS $SJM
sam stribling's avatar
$108m follower assets
The Macro is Running the Show
TLDR at end

This memo maybe unpopular but I am going to call it how I see it and share my perspective with you all on the current market situation. My intent is to take an objective look at our current state of affairs and how I intend to navigate it.

Here we go!
  • The Macro is greater than the Micro - while there are still fantastic companies out there and I agree many are on sale from a historic valuation perspective. The way I see it is, until we get through these Macro headwinds.. it might just not matter. What to do about it? Stick to your strategy, especially if you are a long term investor and pay attention to the businesses that are getting beat up yet are sitting on strong growth trends. $NVDA is a prime recent example that comes to mind.
  • Inflation is a real problem - Specifically in Energy and Food costs. Unfortunately, I do not see much relief coming for either of these sectors. As the meme above jokingly states, the current global economy runs on cheap hydrocarbon energy. While many feel carbon neutral goals are attainable within the decade, the realist in me doesn't see this as truly attainable. I believe the transition away from hydrocarbons will take decades. We need truly available and viable alternatives at cheaper (unsubsidized) costs for this to really happen. On food, grains are the major problem. The geopolitical environment has caused large producers, Ukraine and Russia, to dramatically cut future supplies leading to many countries to start locking down their domestic supplies. What to do? not much, this might simply be something that we will need to weather. Consider buying energy companies and possibly large food suppliers like $CVX $XOM $TELL (my personal play) and $CAG or $GIS.
  • The Fed Has One Tool Left - Raising Rates. The FOMC minutes yesterday were preparing us for a more hawkish approach and they will be using this tool and soon. The question is, will this truly combat inflation that is based on rising input costs not a hot economy. What to do? Consider buying banks $BAC is my personal favorite.
  • We are already in a Recession - I know it is not official yet but in my experience when the narrative turns this way, we are already there. It simply takes time to "confirm" that we are in a recession. What to do? Focus on raising cash, adding a bit more from your day job to your 401K or IRA's and take advantage of the downturn. Recessions are natural and happen periodically.

TLDR: The macro environment is in the driver seat. Until we figure out inflation, specifically energy and food it is going to be a tough market to navigate. The FED is going to raise rates to fight it but this will likely just confirm that we are in the midst of a recession. Despite these headwinds, if you are a long term investor do your best to raise cash and buy quality that has been beaten up. Focus on companies with real earnings and consumer staples that are capable of weathering the storm.
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For the comment about already being in a recession I would ask your comments on the discrepancy between GDP and GDI (Gross Domestic Income), which is up over 2% QoQ vs GDP at -1.5%. Could GDP numbers be too strongly negative because of a sharp rise in net imports to meet inventory demand rather than a more structural weakness? Everywhere I go in my state all the small businesses still have signs saying they're hiring
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Good morning contrarians! Stock futures are up a bit after renewed selling yesterday. Tech stocks once again saw the worst of it with the Nasdaq giving up 2%+ whilst the S&P 500 was down about 1%.

As of 0635 this morning, tech is now looking to lead a rebound, with the Nasdaq up 0.5%. Other U.S. indexes are up a little less. Among individual stocks, HP (HPQ) is rallying 15% on news that Warren Buffett (note correct spelling) took a stake in the company. Shell (SHEL) is dropping after saying it will take a $5 billion accounting hit from its decision to exit Russian operations.

Bonds are seeing some bids as well, with the yield on the 2-year down about 7 basis points to trade around 2.44%. The 10-year yield is off about 3bps to 2.58%. So further away from an inverted yield curve.

Today we have initial jobless claims at 0830, consumer credit at 1500, and Fed speakers sprinkled throughout the day. Also a couple of earnings: $CAG, $STZ, $LW, $WDFC

Featured earnings for the week of Oct 4
On days like today, probably grateful to have a slow news/earnings week. Nonetheless, some interesting companies. I'm particularly interested in listening to $PEP and $STZ commentary on the reopening and supply chain!

And a friendly reminder, days like today can offer good buying opportunities. I personally added positions to stocks I already own in $DBX $ESTC and $GOOG. Nothing's changed in my thesis except they are 2 - 6% cheaper today.

Good luck!

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