The Joe SixPack Misery Index

• Posted by blonde
• on March 11th, 2011

Ok bunnies, many of you know Talented as the hammer on retail stocks, but really, I focus on the whole consumer enchilada. So pardon me while I wax political for a moment on the Four Horsemen that will trip up the economic “recovery”.

Corn + Cotton + Oil + Gold….. The first two aren’t generally mentioned in common conversation but their prices represent fundamental price upswings and have not been driven by speculation as much as the latter two.

Corn is the one we can fix right now by ending government subsidies for ethanol production. It is way more profitable for corn growers to use this most important crop for alternative fuel as opposed to the pressing food shortages and rising food prices.

No one has made corn/ethanol a political story yet, but it should become one by the time Iowa rolls around for the Caucus next January. With the exception of Rick Santorum and Ron Paul, no likely GOP candidate has done anything but support ethanol, mostly because they fear pissing off Iowa voters.

It takes 25 POUNDS of corn to make ONE GALLON of Ethanol. And we’re subsidizing this? Bueller? Plus, the Chinese have increased their corn imports almost 1000 percent in last decade.

Cotton, next to palladium, was the highest rising commodity of 2010, more than gold or silver.

As all the leading corporate CEO’s I’ve talked with over the past 12 months in my main area of expertise, soft-lines retail, cotton price is their biggest concern. But, ALL of them tried to tell me how their particular company was immune/different/not affected! Although they’ve been whistling past the graveyard since profits have been ok, (flat is the new beat), but it is inevitable that these rising costs are going to be passed on to the consumer later this year. Thanks to my friends at Cotton Inc. for the dorky stats: a pair of jeans is running $2 cost per pair in cotton alone where it used to be less than half that a couple years ago. Although most retailers locked in their cotton prices 6 months ago, the real pain will hit just in time for Back to School. I recently sat across from one of the Marciano brothers of $GES at a conference, and he summed it up best (I’m paraphrasing here), in the summer the types of garments sold leave little room to add embellishments to drive up the retail price (shorts, tanks, t-shirts, minis, dresses), so in the fall, that’s where the trim comes in stitching, leather, studs, crystals. And then the prices start jacking up. Back-to-School is going to be biatch.

My suggestion is for families to start back to school clothes shopping the day after this school year ends, since next fall might be severe sticker shock.

My biggest fear is that cotton and corn becoming the target of intense speculation like oil and gold. There are still trillions of dollars on the sidelines that can cause further price spikes. Buckle up, it’s gonna be a bumpy ride.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus