Interesting Bloomberg article this afternoon on corporate profits and raw cost inputs:
"Inflation is eliminating the rewards of owning U.S. stocks.
Surging commodity prices have eroded earnings and spurred the Federal Reserve to consider raising borrowing costs just as equities are trading at their most expensive in four years. Standard & Poor’s 500 Index shares yield 0.22 percentage point more in profits than the interest on 10-year Treasury notes, the smallest advantage since 2004, data compiled by Bloomberg show. The last time corporate earnings returned less versus bonds, the index posted its first quarterly decline in more than a year.
The 44 percent advance in oil, 72 percent jump in corn and 41 percent climb in rice pushed the UBS Bloomberg Constant Maturity Commodity Index to a record this year. That’s squeezing profits as raw-material costs outpace consumer prices by the largest margin since the 1970s. Companies in the S&P 500 will earn 7.7 percent less in the second quarter than a year ago, according to analysts’ estimates compiled by Bloomberg."
We know inflation has been significant — how much is this going to matter in the coming days months and quarters?
What say ye?
Stocks in U.S. Show Negative Return on Inflation Gain
Michael Tsang and Alexis Xydias
Bloomberg, June 16 2008
Zachary A. Goldfarb and Alec Klein
Washington Post, Monday, June 16, 2008; Page A01 html
Nouriel Roubini, professor of economics at New York University’s Stern
School of Business, talks about May retail sales, Federal Reserve
policy and the outlook for the U.S. economy. Retail sales in the U.S.
rose twice as much as forecast in May, with purchases climbing 1
percent, the most in six months, the Commerce Department said.
00:00 Prospects for weaker consumer in autumn
02:05 Fed to hold despite "hawkish" rhetoric
03:22 "Very pessimistic" about housing
04:32 Could be "long and protracted" recession
05:34 GDP to fall for four quarters
Roubini of NYU Sees ‘Long and Protracted’ U.S. Recession: Video
June 12, 2008
Lakshman Achuthan, a managing director at Economic Cycle Research Institute, talks with Bloomberg’s Carol Massar in New York about the outlook for the U.S. economy, inflation and consumer prices. The consumer price index increased 0.6 percent in May, the Labor Department said today. So-called core prices, which exclude food and energy, rose 0.2 percent. (Source: Bloomberg)
00:00 Recession as "primary concern" over inflation
01:03 "We do not have strong signs of a recovery."
02:50 Reasons why inflation not "out of control"
Achuthan: Recession a Bigger Concern Than Inflation: Video
Bloomberg,June 13 2008