While the overall market indices would have you believe it was quiet the last few days as we come to the close of 1Q 2012, I would argue quite the contrary. The last week was flush with fresh data and observations that fuel my PowerTrend investing methodology. Here is the data, along with my observations:
If Identity Theft Can Happen to Him, It Can Happen to You
Many would consider Paul Allen, billionaire co-founder of Microsoft and one of the richest men in the world, to be a technology-savvy individual. Allen made the bulk of his fortune founding Microsoft with Bill Gates in 1975. He left the company in 1983 and now owns the Seattle Seahawks and the Portland Trail Blazers. He is the founder and chairman of Vulcan Inc., the company that manages his business and charitable undertakings. Forbes estimates Allen’s net worth at $14.2 billion.
Even so, this week in an unsealed complaint we learned federal investigators allege Brandon Lee Price changed the address on a bank account held by Mr. Allen. A few days after that address change, Price called Citibank and changed the address on an account held by Allen from Seattle to Pittsburgh. Price then called back three days later to say he’d lost his debit card and asked for a new one to be sent to him, an FBI investigator wrote in a criminal complaint. All in all, the card was used for a $15,000 Western Union transaction and to make a $658.81 payment on the Armed Forces Bank loan account the day it was activated, according to the complaint.
While it is easy to think that only companies, large institutions, celebrities or billionaires are targets, the reality is that anyone can be a victim. Just under 280,000 cases of identity theft were reported in 2011, according to the Federal Trade Commission’s Bureau of Consumer Protection. That total includes complaints with the Better Business Bureau and state attorney general offices, as well as other law enforcement agencies. This situation shows how important security is and why the demand for it is rising. That reality fits right into my Safety & Security PowerTrend. There are companies making a lot of money in this area and I will be recommending specific stock plays in my PowerTrend Profits newsletter that launches next month.
Food Costs as well as Gas Prices Rise
Last week, we talked about the continued increase in domestic gas prices and I promised to touch on the impact on food prices this week. As we are all aware, gas prices have surged year to date and are roughly 10% higher year over year, according to AAA’s Fuel Gauge Report. As we head into the spring and summer driving season, prospects for higher gas prices are more likely than not. While consumers will feel the pain at the pump, they will begin to see it elsewhere, as well. The United Nation’s Food and Agriculture World Food Price Index already has bottomed and started to rebound in 2012, after peaking a year ago. While down 7% from the peak, one of the key components — the meat price index — has continued to climb and stands 6% higher year on year. What’s more revealing, however, is the steady climb in the overall food index since October, which is up 3% over the last five months, with nearly all sub-categories up.
In early February, Benihana Inc. mentioned its costs of food and beverages rose to 24.7% of sales for the company’s fiscal third quarter, up from 24.3% in the year-ago quarter. That increase reflected escalating commodity costs that more than offset certain menu pricing increases and slowing use of discounts taken at the beginning of the current fiscal year. Last week, we heard from General Mills that “earnings were generally in line with year-ago levels due to this year’s significant input cost pressure.”
The outlook, while upbeat for the top line of General Mills, was mitigated by the gross margin outlook. Management was calling for the gross margin to fall below year-ago levels due to higher year-on-year input costs, as well as a business-mix shift that includes the recent acquisition of Yoplait International.
Also last week, ConAgra Foods reported that its Consumer Foods segment saw profits decline year over year due to very high input cost inflation, which more than offset the benefit from pricing, cost savings and recent acquisitions. What were those inputs that impacted profits — proteins, packaging and fuel.
The 9% surge in gas prices over the last month will continue to pressure input prices. Companies will incur the direct and indirect impact that will affect costs associated with shipping, as well as other services. Those costs could result in the surcharges making the rounds again.
Some consumers already are starting to adjust their spending, given the rise in food and gas prices, according to a new survey from PriceGrabber and Experian. The study found that 28% of those surveyed indicated they may scale back their shopping budgets. Odds are, as price realization tied to the recent surge in fuel prices is felt, that percentage is bound to rise. To me, such caution means that a potential spending slowdown leaves airline companies, such as United Continental Holdings and Delta Air Lines, among others, and casual dining restaurants, like Red Robin and Buffalo Wild Wings, vulnerable. In particular, chicken wing prices have jumped significantly year over year, with wholesale prices per pound reaching $1.82 in February 2012 vs. 98 cents in February 2011, according to SpenDifference data. Even though March’s delivery price for chicken wings was expected to average about $1.73, that price is more than double last year’s price of 86 cents.
I continue to see consumers retrenching and, with food and fuel costs accounting for 17% of the average U.S. consumer spending, it is one area that is likely to fall under the spending microscope. As such, I see The Cash Strapped Consumer again adopting stay-cations and eating more at home in the coming weeks and months. Let’s follow their moves and profit from them together in the coming weeks and months.
Editor, PowerTrend Brief
P.S. You can take advantage of a special promotional offer to become a subscriber to my new monthly investment newsletter, PowerTrend Profits. Our normal subscription price will be $249 a year but my publisher is offering a pre-publication, introductory price of only $77 through April 13. After that date, the introductory price will increase! My first issue will come out toward the end of April, so I invite you to become a founding subscriber by signing up today.
• On Monday, April 2, listen for my weekly appearance on America’s Morning News to talk the economy, the stock market, stocks and more.
• On Saturday, April 28, I will address the American Association of Individual Investors (AAII) Computerized Investing Special Interest Group in McLean, Va.
• Please join me for the Las Vegas Money Show, May 14-17, at Caesar’s Palace. To register, call 1-800/970-4355 and mention priority code 026656 or go to ChrisVersace.lasvegasmoneyshow.com.
As we close the chapter on 1Q 2012, here’s what I’ll be paying attention to as we dive into 2Q 2012.
Monday, April 2
ISM Manufacturing Index (March)
Construction Spending (February)
Lifeway Foods (LWAY)
Pep Boys (PBY)
Talbots Inc. (TLB)
Tuesday, April 3
Factory Orders (February)
Auto & Truck Sales (March)
International Speedway Corp. (ISCA)
Wednesday, April 4
MBA Mortgage Index (Weekly)
ADP Employment Change Report (March)
ISM Services Index (March)
Global Payments (GPN)
Monsanto Co. (MON)
PriceSmart Inc. (PSMT)
Ruby Tuesday (RT)
Thursday, April 5
Challenger Job Cuts Report (March)
Initial & Continuing Jobless Claims (Weekly)
Constellation Brands (STZ)
Pier 1 Imports (PIR)
SemiLEDS Corp. (LEDS)
WD-40 Co. (WDFC)
Friday, April 6
Employment Report (March)
Consumer Credit (February)