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Do Surging "Prices Paid" Imply A 20% Plunge In S&P 500 Profit Margins?

Tyler Durden's picture


Whereas yesterday Zero Hedge looked at the relationship between the ISM Price Paid index and the broad inflation CPI (coming to the conclusion that 12 months from today the CPI may be increasing by a massive 6%+), today we look at a correlation with the metric that should be even dearer to investor hearts: operating margins. The chart below shows the PMI Price Paid index compared to an inverted scale of of the S&P margin. It appears that margins follow the PPI with a four quarter delay, and while the period between 2003 and 2007 did not see a major contraction in margins, this can be attributed to massive abundance of liquidity available to the common man which allowed companies to pass through costs for more aggressively than before. Alas, and as confirmed by Whirlpool and Electrolux' results today, such an outcome this time around is impossible. One thing is certain: should February's Price Paid index continue to rise, margins will, intuitively, have no choice but to plunge. Which is why we anticipate a dramatic 15-20% drop in margins, an outcome which will have material consequences on S&P 500 EPS forecast.

On this chart below, keep an eye out on the orange line. It is going much higher...

h/t Harrison


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Wed, 02/02/2011 - 15:11 | 928262 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

SH'nTF.   Oil is back, PMs making a move.  What about the dollar?

Wed, 02/02/2011 - 15:43 | 928348 Spalding_Smailes
Spalding_Smailes's picture

What move .... the pm have fallen with said dollar. A conundrum ... I heard for months about the dollar = gold to da' moooooooooooon.

Lets see what rasputin thinks ....


............. " Even Ras--who has lived, breathed and slept these issues for DECADES is totally blown away by this author's grasp of the subject. 

Furthermore, in this very-lengthy missive, he brings up a couple of points that Ras has been discussing for months now on this board, in the summary, excerpted here: 

"In closing, if all of these gold dealers and other gold bugs really believe hyperinflation is inevitable in the U.S., you need to ask them the following two questions. 

(1) Why are gold dealers spending tens of millions of dollars on ads, PR and endorsements trying to convince you to buy it if it’s going to the moon? Why don’t they just hoard it for themselves? 

(2) If Williams, Schiff or Faber really believe hyperinflation is a certainty, ask them if they are willing to place a large bet with me, you or anyone else. It would be the easiest money I ever made. Of course they don’t need to risk losing money on such a bet. All they need to do is keep the sales pitch up. Doing so will land them money regardless where gold prices head." 

Also, this guy is no "mainstream financial" idiot, either. His own predictions (going back to 2006) were for an economic crash and buggy whips to sky to 1400 fiatscos per ounce!!! 

(Ras Conclusion): Whoever this author is, he has identified all the trends regarding the whip and spoon casinos that Ras has been lamenting for months and months now, before the Mad Monk himself felt impelled to bail out of these speculative-locust-and-charlatan-invaded gambling dens. 

All GHSers/SHSers should put their prejudices and biases aside and read this article from start to finish. It is the best-researched, most-compelling, missive Rasputin has ever read regarding the whip and spoon mania--and who is profiting from it. " ............................... 

Wed, 02/02/2011 - 15:44 | 928380 SheepDog-One
SheepDog-One's picture

Yea sure, PM's have 'fallen' up 60% right in step with the dollars yearly decline of almost analysis Spalding!

Wed, 02/02/2011 - 15:46 | 928384 Spalding_Smailes
Spalding_Smailes's picture

Gold is down what 7-9 % this year ..... ? 

Wed, 02/02/2011 - 15:49 | 928394 SheepDog-One
SheepDog-One's picture

And still up 60% from last year!  :D

And just wait till QE3 murmurs grow louder, gold will flash smash thru $2,000 like nothin.

Wed, 02/02/2011 - 16:02 | 928446 SheepDog-One
SheepDog-One's picture

Spalding who is this assclown youve latched on to who assumes gold dealers hold none for themselves? What an out of control brain dead do you or that idiot analyst know they dont? And BTW you can write back to that idiot and tell him gold dealers make their money on the premium. I mean, DUH? This guy and yourself I guess also must assume that stock brokerage houses are SIMPLY pulling a scam by selling stocks 1 way out the door, hold none themselves, and dont make most of their money on the comission? Really Spalding, this is retarded, you should delete your post.

Wed, 02/02/2011 - 16:18 | 928504 Spalding_Smailes
Spalding_Smailes's picture

Pot calling the ...


95% of your post = pom~pom waving. Teach me something about dollar denominated debt or the shadow banks ?

Wed, 02/02/2011 - 16:25 | 928519 SheepDog-One
SheepDog-One's picture

No Spalding, 100% of my post was proving that ass hat analyst and your conclusions about PM dealers somehow peddling their worthless wares to unsuspecting dupes was just ridiculous, and proved its no different than stock brokers who make most all their profits from the exchange itself as well, buying or selling matters nothing to them.

Wed, 02/02/2011 - 17:14 | 928653 ColonelCooper
ColonelCooper's picture

Way to duck the question, Asshat.  Tiptoeing the high wire over troll lake.

Wed, 02/02/2011 - 16:20 | 928508 RockyRacoon
RockyRacoon's picture

Is that like saying all those guys in the trading pits keep that cotton, soybeans, copper, oil, pork bellies and such in their back yards?  What?  In big ole freezers, storage bins and silos?  Yeah, we coin dealers keep all that stuff.  That's just how rich we are.

Wed, 02/02/2011 - 16:26 | 928521 Spalding_Smailes
Spalding_Smailes's picture

All the new gold shops around the city now selling gold, flashing neon, give me your FIAT for my gold ....


Don't see ads for other commodities  ? Now why would they take dollars if we are looking at hyperinflation ?

Wed, 02/02/2011 - 16:33 | 928548 tmosley
tmosley's picture

You must live on the moon, because I see nothing but "We buy gold" signs everywhere.

Wed, 02/02/2011 - 18:50 | 929042 Sudden Debt
Sudden Debt's picture

RockyRacoon, what does a coindealer make a year if you don't mind telling?

Wed, 02/02/2011 - 19:54 | 929221 RockyRacoon
RockyRacoon's picture

That would be as varied as any other type of business.   There are big dealers who have large staff and do monthly numismatic auctions, so they are not in the category of bullion dealers only.  Some are bourse dealers who do a lot of business with walk-ins, and they ain't telling.  I do a little of both on Internet sales venues but my primary business is philately.  I do 10 times the dollar volume in stamp sales over coin sales because the margins are quite a bit larger.   A lazy dealer like me can do 250K a year easy and have a 25 to 40% margin.   Coins only can probably net you a 10 to 20% margin (if you are an honest dealer).

Wed, 02/02/2011 - 15:50 | 928408 schoolsout
schoolsout's picture

1) Dealers don't make money by investing in gold, they make money from spreads/premiums


for Christ's sake...

Didn't even read the rest.

Wed, 02/02/2011 - 15:58 | 928428 Spalding_Smailes
Spalding_Smailes's picture

Ya but why not keep it if its going to 5,000.00 ??? Who cares about premiums ... Why all the ad's pumping it .... ?


Don't read it - Lol'...... Another tip, gold below 1,300 within 2 weeks. Then maybe you double back and finish reading.

Wed, 02/02/2011 - 16:01 | 928444 Quinvarius
Quinvarius's picture

Dealers don't make or lose money on gold price moves.  That IS the answer to your question.

Wed, 02/02/2011 - 16:06 | 928460 Spalding_Smailes
Spalding_Smailes's picture

I wonder if they sell the shortage thingy so they keep sales up ? Seems the USA mint has produced tons of coins over the last 3 years,many more than the previous years..... but, but, but what about the shortage ... ?

Wed, 02/02/2011 - 16:22 | 928515 Quinvarius
Quinvarius's picture

You wonder if they intentionally have no product so they can sell more product?

Wed, 02/02/2011 - 16:23 | 928517 RockyRacoon
RockyRacoon's picture

You're a fucking moron commenting on a field of endeavor about which you obviously know nothing.

Wed, 02/02/2011 - 16:31 | 928539 Spalding_Smailes
Spalding_Smailes's picture

With all your insight why not give ZH heads up on crash ... ?


Silver Wheaton was down 25% shit, traders need help before said crash !

Wed, 02/02/2011 - 16:34 | 928554 tmosley
tmosley's picture

I, and many others, proclaimed loudly that everyone should stay right the fuck away from any and all forms of paper gold and silver.  What the fuck do you think SLW is?

Get the fuck out.

Wed, 02/02/2011 - 16:38 | 928563 Spalding_Smailes
Spalding_Smailes's picture

Wait now T ...

I went back into the older post after gold hit 1,400 .... Spitzer had a list of 10 miners , do chen bearing ect ..... I'll post later it was filled with " miner " tips... !!!!!

Wed, 02/02/2011 - 17:20 | 928677 tmosley
tmosley's picture

The strawman rapist strikes again!

Wed, 02/02/2011 - 18:21 | 928789 Spalding_Smailes
Spalding_Smailes's picture

.............. " I, and many others, proclaimed loudly that everyone should stay right the fuck away from any and all forms of paper gold and silver.  What the fuck do you think SLW is? Get the fuck out. " ............................


What ---- Lol' ... And everyone can pick up gold at 1,400.00 ..... LOL' Nope they trade the paper, well over 50%, look at the paper market ( miners,etf's,futures )

.... " Surge In GLD December $145 Call Volume "............ Spritzer, Mr. Lennon Hendrix, DoChenRollingBearing, SilverKing, Spartan 117, Shameful, ect .. So many pimp's now silent .... Pin drop again.


Many mining pimp's on ZH. Lots of cash lost .... Lol'

Wed, 02/02/2011 - 20:59 | 929426 tmosley
tmosley's picture

You're a fucking moron.  Gold is down a few percent, and you think everyone who owns it is losing money?

GET THE FUCK OUT.  You are not smart enough to post here.

Wed, 02/02/2011 - 21:21 | 929461 Spalding_Smailes
Spalding_Smailes's picture

Nice sidestep. I thought most didn't roll sell'n/buy'n paper ( but the old ZH link shows many vet's doing just that, paper whores ), you said but,but,but ....

Also you know most can't buy gold at 1,400 another bitch slap for Lil T'. Shit boy ... I taught you about dollar denominated debt and ben's pimp strut ' swap my dollars for your e.u. bux and 10% of your gold... Lol' Ben = Play'a ....

Put down the pom~pom's and read something, please. I posted ton's of info, train traffic, china ect .... 




P.S. ~ Incase you did not read my question, why is gold rolling over in tons of global currencies..... ????$GOLD:FXE,$GOLD:FXY,$GOLD:FXC,$GOLD:FXS,$GOLD:FXA,$GOLD:FXM,$GOLD:FXB,$GOLD:FXF|D 


Wed, 02/02/2011 - 16:37 | 928561 RockyRacoon
RockyRacoon's picture

I wrote no place that I have a crystal ball.  My comment was directed solely at your inadequate understanding of how a retail business is run.  Period.

Wed, 02/02/2011 - 16:55 | 928608 SheepDog-One
SheepDog-One's picture

Now Spalding like Robo and the others must bring up PAPER PM's which are a joke, to make your point? Thats very weak, and forever around here paper silver and gold has always been pointed out as a fraud. PHYSICAL delivery is your best hedge against the fiat printing lunatics. PM's up 60% over 12 months, dollar floundering around 1%, purchasing power of fiat dollar WAY down.

Wed, 02/02/2011 - 16:06 | 928462 SheepDog-One
SheepDog-One's picture

Spalding just apply this idiot researcher and by extension your own apparent belief about PM dealers to stock brokerage houses own stock protfolios? Do they ONLY SELL stocks? Where do THEY make most of their money, from the premium? Well yea of course, anyone with any basic understanding of how a broker works understand they both buy AND sell, they do have portfolios, and matters LITTLE if they buy or sell because their profit is in the transaction fee! DERP!

Spalding this is just a terrible thread youve started, Id highly consider removing it.

Wed, 02/02/2011 - 16:10 | 928477 Spalding_Smailes
Spalding_Smailes's picture

Maybe you should read the entire piece then get back with me .... most your post are waving pom~pom's with fluff nothing more .... And now your calling for removing it, lol' dog, lol''''''''

Wed, 02/02/2011 - 16:15 | 928492 SheepDog-One
SheepDog-One's picture

Spalding now youre just hysterical...Ive never even said I own any gold! But this morons ridiculous paranoid assertions that PM dealers are simply shady scam artists selling their worthless wares is just LAUGHABLE when you look at where people ARE going in droves! Into PM's! And just wait untill the QE3 calls get louder and PM's double from here quickly...nevermind your original assertion that PM's are dead having a 60% 12 month rise while the dollar is stuck in the mud at 0. You look ridiculous Spalding.

Wed, 02/02/2011 - 16:07 | 928467 SDRII
SDRII's picture

Are you retarded? Running a spread business means transacting to capture the spread (of course this excludes the chosen who gets thier "capital" for free. Ask yourself, in a low margin volume business, where would the "capital" come from to horde that gold as you suggest?

Idiotic comment but telling

Wed, 02/02/2011 - 16:15 | 928481 Spalding_Smailes
Spalding_Smailes's picture

I've been calling for a gold bust for 4 months ( housing bubble quotes ect .... ) and BOOM 9% so far ..., with all the stock picks .... x,zeus,rimm,nvda,xom,jobs, ect ........


Babe Ruth like .... What u got bitch ?


* crickets * --- chirp, chirp, chirp .... move along.

Wed, 02/02/2011 - 16:18 | 928501 SheepDog-One
SheepDog-One's picture

Oh your stocks are up Spalding? Gee, thats terrific....nevermind what you trade them in for, dollar purchasing power, is sliding down daily. Que crickets chirping *chirp*! *Chirp chirp!*

Wed, 02/02/2011 - 16:20 | 928510 Spalding_Smailes
Spalding_Smailes's picture

Look at a ten year dollar chart ....


Now look at the chart after Lehman blew up, now look at the dollar today, what drop ???

Wed, 02/02/2011 - 16:38 | 928558 SheepDog-One
SheepDog-One's picture

OH I see what the problem is Spalding, youre looking at currency charts comparing the worthless fiat dollar to other worthless fiat currencies. Amateur mistake. Now to get the correct view, price your stock rise in gold. Not a pretty picture.

Wed, 02/02/2011 - 16:56 | 928586 Spalding_Smailes
Spalding_Smailes's picture

Why is gold falling in every currency around the globe ...?$GOLD:FXE,$GOLD:FXY,$GOLD:FXC,$GOLD:FXS,$GOLD:FXA,$GOLD:FXM,$GOLD:FXB,$GOLD:FXF|D









Wed, 02/02/2011 - 16:38 | 928564 tmosley
tmosley's picture

And yet you can only buy half of what you could with it.

The USDX is like an altimeter that uses other planes to tell you what your altitude is.  Sure, it looks like we're all level and everything is fine, except all the planes have run out of fuel and are nose-diving into the ocean.  Prices for EVERYTHING are going up.

Your head is broken, boy.  You'd best unfuck yourself before you have to pay the piper.

Wed, 02/02/2011 - 16:51 | 928594 Spalding_Smailes
Spalding_Smailes's picture

Naw' doing great this year .... And starting a new business.


I wonder why Turd opened up a new business before the looming hyperinflation.. ?

Wed, 02/02/2011 - 16:59 | 928619 SheepDog-One
SheepDog-One's picture

Spalding are you and Harry teaming up in his wildly expanding urinal cake to chain motel business?

Wed, 02/02/2011 - 17:07 | 928636 Spalding_Smailes
Spalding_Smailes's picture

No Lol ... '


20ft. straight truck. Deliveries around Chicago tri-state area... 

Wed, 02/02/2011 - 17:22 | 928688 tmosley
tmosley's picture


Holy shit, you're a moron.

Might as well try your hand at flipping houses in Detroit.

Wed, 02/02/2011 - 17:51 | 928815 Spalding_Smailes
Spalding_Smailes's picture

Oh' Ta fool .....


Already have accounts lined up .... Face it buddy, things are picking up. Also why is gold down in every currency you side-stepped that one ....

Wed, 02/02/2011 - 21:04 | 929449 tmosley
tmosley's picture

Sure, you've got two people interested in your "service", and you say they are "lining up".  What a moron. 

Only morons claim that bull markets only move in straight lines.

Give it up, shit for brains.  You aren't smart enough to post here.  This is made clear by the fact that you are opening up a new business in an area with confiscory taxation.  Might as well join a fucking chain gang.

Get out, idiot.

Wed, 02/02/2011 - 21:15 | 929480 Spalding_Smailes
Spalding_Smailes's picture

How doz gold taxes boy ... Your the know troll boy'...

Everyone who has followed Spalding on ZH knows hes hitting 600 over the last 4 months .... Lol'


Why no warning on the big drop in silver/gold thats right you just wave pom~pom's on ZH post after post about gold. All the same shit.


But why oh why lil' T is gold falling in most global currencies, come on boy tell all your ZH fan's what'z up with dat' ...

Wed, 02/02/2011 - 18:14 | 928912 snowball777
snowball777's picture

We sincerely hope it's not a you can enjoy having your margins crushed along with the corporations who's TP you're holding.

Wed, 02/02/2011 - 16:50 | 928591 d00daa
d00daa's picture

Look at a ten year GOLD chart.....




You can't possibly believe your own bullshit.

Wed, 02/02/2011 - 16:52 | 928599 Spalding_Smailes
Spalding_Smailes's picture

10 year dollar chart. 


Did you get your picks ready .... ?

Wed, 02/02/2011 - 17:00 | 928621 SheepDog-One
SheepDog-One's picture

Every post Spalding concludes with 'crickets chirping' or 'pin drop' only to get immediately face pwnd...hillarious.

Wed, 02/02/2011 - 18:08 | 928885 Spalding_Smailes
Spalding_Smailes's picture

Why is gold droping in every currency around the globe.


Put down the pom~pom's.... 


Pin Drop *

Wed, 02/02/2011 - 18:15 | 928917 snowball777
snowball777's picture

JPM still a going concern?

Wed, 02/02/2011 - 17:07 | 928637 d00daa
d00daa's picture

While your equity picks are solid (sans AIG, boy what a cluster), your irrational hatred of PMs will be your undoing.  So tell me Smailes, what are your PM shorts?  Unless you're just trolling and not practicing what you preach.


See, QE-infinity pushes the price of EVERYTHING up - but you already knew that.


Just promise you won't go MIA again on the next 3% up day.

Wed, 02/02/2011 - 17:29 | 928718 Spalding_Smailes
Spalding_Smailes's picture

No, I just read a lot and think gold topped for a few years .... No shorting.


I would not be buying now. But some think this is just a correction. We will find out over the next 6 months .. We will also find out about QE 3 soon also.

PS - AIG was up 24% but I stopped out at 10% ....

Wed, 02/02/2011 - 18:06 | 928872 d00daa
d00daa's picture

What a pussy.  Where is the conviction in your beliefs?  You could have made a pretty penny on that 8% slide.  You can be simultaneously long equities and short gold.  I know quite a few people that are, in fact.


Take a look at your weekly and monthly charts, buddy.  It could "correct" to ~1200 over the next year (it won't) without disrupting the secular trend in any way, shape or form.


"Find out" about QE3?  LMFAO.  QE4EVA, ZIRP4EVA.  The genie is out of the bottle.

Wed, 02/02/2011 - 18:16 | 928921 Spalding_Smailes
Spalding_Smailes's picture

Many traders can't sit on a year of monkeyhammering of said mining stocks and etf's.

You don't think everyone can pick up gold at 1,400 now do you. Many play the doomer trade by way of etf's and miners and the futures game, lets not forget that casino' .... When does the news of everything picking up in the USA get priced into gold ? 

Cat just quadrupled quarterly profit. Many large cap global businesses are doing very well in the USA .... This is not just pomo driving stocks.

Wed, 02/02/2011 - 18:44 | 929014 d00daa
d00daa's picture

Come on now!  GLD put premiums were looking pretty light a while back, GLL, etc etc.  There are plenty of ways to play gold short equivalence.  Don't be a pussy.


When things are "picking up in the USA" with a 3% funds rate, ZERO QE and a pre '08 Fed balance sheet, be sure to let me know.


Until then, I see nothing to indicate that this is all going to end well without another deep, deep correction and/or crash at some point.

Wed, 02/02/2011 - 16:21 | 928513 schoolsout
schoolsout's picture

I'm assuming you think gold/silver must go up in a straight line or else it's.....kaput?

Do you have google on your machine?  You should go check out some gold charts and see how many corrections have occurred in this 10 year bull...


Get back to us on that...thanks.

Wed, 02/02/2011 - 16:28 | 928529 Spalding_Smailes
Spalding_Smailes's picture

No, but I called it right through 1,400 ( the mania on ZH back then, pages every poster selling miners ) and the jpm and bears shit .... It should be at 1,480 ....

Wed, 02/02/2011 - 16:33 | 928547 SheepDog-One
SheepDog-One's picture

You'll see $1,480 and far higher very soon when QE3 becomes leading headlines soon.

Wed, 02/02/2011 - 16:35 | 928556 schoolsout
schoolsout's picture

you said you were calling it 4 months ago


so, what was the price 4 months ago and where is it now?


Please keep your hands in your pockets or under your ass before you type up some more BS and spill dumbass all over yourself again.

Wed, 02/02/2011 - 16:54 | 928605 Spalding_Smailes
Spalding_Smailes's picture

Are you fucking new. You have not seen my housing bubble quotes over the last 3-4 months as the mania hit 1,400 ....


" It's on like Donkey Kong "..... Lol'

Wed, 02/02/2011 - 17:11 | 928646 schoolsout
schoolsout's picture

Am I new?  Pretty sure I've been here much, much longer than you.

The fact of the matter is you claim you are right when you started calling for a "crash" 4 months ago.  Guess what, dumbass...the price was lower 4 months ago than it is today.

For fuck's sake, kid....just walk away from the internet for a bit.

Wed, 02/02/2011 - 18:03 | 928867 Spalding_Smailes
Spalding_Smailes's picture

Yes shithead. And it kept going up and I still was posting bubble quotes ...


But your right gold has done nothing good after Oct. 20th.

Wed, 02/02/2011 - 16:57 | 928615 tmosley
tmosley's picture

Reminds me of a troll I fought with for some two years on another forum.  He kept saying gold was going to "plunge", and he would trot out at every little correction and claim he was right, and say that everyone was gong to "lose their ass".  I had to constantly remind him that gold never actually dipped below the point where he said it was going to plunge even once since he made the call.

Same thing here.  Some idiot calls a top, and when you get a correction they claim they were "oh so right", yet they forget that it is still higher than when they made the call.

I, personally, have called for volatility in the PoG (and the price of silver as well) to approach infinite, and eventually land at zero as the exchanges go bust, and physical can only be had at a price of $0+a giant premium.  The premium for silver could be hundreds, thousands (or a hyperinflated sum, say 10^20) of dollars an ounce.  Gold will be similar.  Hell, lots of stuff will be similar.  Just hope that you are able to find/keep a job that keeps up with the inflation rate.  Barring that, hope you have enough gold/silver that will let you buy up capital so you can produce goods and survive.

Wed, 02/02/2011 - 17:05 | 928627 SheepDog-One
SheepDog-One's picture

Theres a LOT of volatility in PM's, helped greatly by Blythe and central banks all-out assault on PM's to rescue their shorts. And Spalding now claims he 'called it'...whatever, all the silver I have was bought around $10. AND I sleep at nite not worrying about what the demon banksters will pull tomorrow, go ahead and tank the markets or print more fiat, doesnt matter to me at all! Any further central bankster actions only strengthens PM.

Wed, 02/02/2011 - 16:20 | 928509 SheepDog-One
SheepDog-One's picture

Spalding why dont you start an attack campaign on all the stock broker ads pumping their stocks?

Wed, 02/02/2011 - 16:21 | 928511 Spalding_Smailes
Spalding_Smailes's picture

Why ?

Wed, 02/02/2011 - 16:34 | 928537 SheepDog-One
SheepDog-One's picture

Why? Because your vendetta against scurrilous PM dealers peddling their worthless wares (selling only according to you) to apparent unsuspecting dupes using ads....shouldn't you also attack the ads from stock brokers, or how about the CNBC liars pushing their 100 P/E overvalued by any measure junk stocks? Go get em Spalding!

Wed, 02/02/2011 - 16:36 | 928555 Spalding_Smailes
Spalding_Smailes's picture

NVDA not a junk stock. XOM not junk, JPM-DB nope ......


You must do your own research and figure out the runners. Or keep writing them down when I post them ...

MPEL, IMAX, JOBS, AXTI, BRKS, STKL, TTWO .... Write them down and get back with me in 12 weeks.

Wed, 02/02/2011 - 16:40 | 928567 SheepDog-One
SheepDog-One's picture

Now, price your stock rise in gold instead of relative fiat currency charts, oof, not a pretty picture.

Wed, 02/02/2011 - 17:24 | 928697 tmosley
tmosley's picture

When he does it, it's legitimate.  

Wed, 02/02/2011 - 16:27 | 928525 SheepDog-One
SheepDog-One's picture

'Why not keep it, if its going higher'?

AH yes I all the cotton traders on the exchange floor actually take bales of cotton home with them each nite? LOL Spalding, youre a laff riot!

Wed, 02/02/2011 - 16:33 | 928550 AccreditedEYE
AccreditedEYE's picture

+1 what a joke.

Wed, 02/02/2011 - 17:06 | 928613 Cursive
Cursive's picture


Unbelieveably, I read the whole article. My conclusion? Michael stathis is using the Spalding Smailes userid to sell subscriptions to his newsletter.

Wed, 02/02/2011 - 17:06 | 928632 SheepDog-One
SheepDog-One's picture

LOL, sure sounds like the exact same guy to me!

Wed, 02/02/2011 - 15:15 | 928268 jus_lite_reading
jus_lite_reading's picture

It means a rally in the markets. BTW, the direct correlation to GDP weighted against every $1 increase in the price of oil/pb, means the Fed is required to inject $650 BILLION per month into the markets; $125B just ain't cutting it! (ignore the inflation, BEnron said he's got everything under control, 100% confident he is the messiah- with a name like Ben Shalom Israel Bernank you bet he is!)

Wed, 02/02/2011 - 15:15 | 928269 The Axe
The Axe's picture

With a near 10% stated unemployment rate, companies should be able to whip some more worker productivity out of a frighten workforce, or more generous tax breaks to keep that corporate earnings moving head....They have a few tricks up their sleeves still..

Wed, 02/02/2011 - 15:47 | 928390 thepigman
thepigman's picture

Your views are in defiance of the

squid forecast of, yes, folks, a triple

top at 1500, to match the two other

fraudulent tops we've had at 1500

in years past. Squid says...we've fooled

you twice before...we can do it again.

Talk about chutzpah.

Wed, 02/02/2011 - 16:02 | 928448 thepigman
thepigman's picture

We suckered you to 1500 on dotcoms

in 2000, suckered you again to 1500

on housing in 2007.  Now we wish

to defraud you for the third time based

on your fervent wish to return to the

"good times". We will promise "good times"

right up to a third fraudulent top of 1500.

C'mon suckers, we know you're out there.


in 2011


Wed, 02/02/2011 - 16:09 | 928478 SheepDog-One
SheepDog-One's picture

They may find some pigman, who knows! Has to be a tougher trick this time though as very few people have any funds at all to throw at the top of another stock bubble this time around.

Wed, 02/02/2011 - 15:15 | 928270 Jason T
Jason T's picture

corp profits at a ridiculous 10% of GDP now.  Mean since 1947 is 6%!  OF course will fall.. and with S&P 500 average div only 1.74% ... I see S&P 500 going to 400 easy within the next 1-4 years.

Wed, 02/02/2011 - 15:19 | 928284 Sudden Debt
Sudden Debt's picture

Not yet Tyler, I already said this once but the goods sold are still Stock products, meaning they are selling stock with a premium of inflation.

Pure profits.

It's what's being produced now and what will be marketed in the comming months that will supress profits.

Unless inflations speeds up... and it will.

From jan. there where for example 15% price increases on worked steelproducts, that pricerice will hit the streets in about 2 to 3 months.


So profits will be actually high. But don't get cought on future earnings, those will be catastrophic.


Wed, 02/02/2011 - 15:25 | 928299 Common_Cents22
Common_Cents22's picture

How many businesses can get price raises on current inventory so quickly?  My experience is it take several months to fully implement price increases to customers.

Wed, 02/02/2011 - 15:38 | 928340 Sudden Debt
Sudden Debt's picture

nonono, it goes a lot faster then you think.

We just don't communicate it to the clients anymore.

Producers don't ask questions anymore.

Retailers don't ask questions besides what their competition pays for the product.

The consumer doesn't even notice.

Now don't forget, that 15%is on the 20% product cost and not the overall cost so the final product price rice will be arround 3%.

This is what masks the entire inflation figure. If they would tell you for example that inflation would be 5%, that would mean commodities would be up 25%.

And the only way to mask it is by cutting wages but that a deathgrip, but wages only need to go down 1/4th of the % product price rice.

So it products go up 15%, wages should go down 3,75% (or costs in general).

And that is what is hidding inflation, the wages that don't rise or go down.


Wed, 02/02/2011 - 16:08 | 928471 DutchZeroPrinter
DutchZeroPrinter's picture

But if wages drop, at some point revenues drop and profits will drop. The good thing is that good companies will make their profits. Bad companies will go bankrupt eventually. Central Banks can't do anything about this. They can only slow the unwinding by intervening.

Wed, 02/02/2011 - 18:54 | 929054 Sudden Debt
Sudden Debt's picture

Big companies can keep on playing that game for decades and every downturn in the economy normally lasts about 15 years so they survive it when they keep doing it in a orderly fashion and remember to step up when the economy steps back in and tripple in size the decade that follows.

Wed, 02/02/2011 - 15:35 | 928335 4xaddict
4xaddict's picture

valid point on the existing inventory however from the factories in China that I work with, the purchasing volume from US customers is and has been since Lehman substantially lower and has been pushed to the limit of just in time logistics in many cases.

Don't expect this to take months to flow through as the Chinese are putting prices up again as they always do at this time of the year (Chinese New Year).

The only thing that may save them are currency hedges however most businesses are not financially savvy enough to manage this optimally.

Sure Walmart might take a little while longer than most but the average business will be putting things up again pretty soon.

Here in the UK they have all put off the VAT price rise from 17.5% to 20% (VAT is their value added tax on goods and services). This will translate into wholesale price increases as companies look to take the opportunity for a price rise with justification to bump things up more than 2.5%.


Wed, 02/02/2011 - 15:45 | 928373 Sudden Debt
Sudden Debt's picture

In this case, your company is actually a boxmover and the chinese product is part of the 20% product cost.(same as raw material in local US producer).

Handling, order picking, distribution... = the rest of the 80%


For the UK tax rise, on overall, you guy got a 2.7% raise on jan. 2011. You're actually better off.



Wed, 02/02/2011 - 16:31 | 928336 4xaddict
4xaddict's picture


Wed, 02/02/2011 - 16:31 | 928337 4xaddict
4xaddict's picture


Wed, 02/02/2011 - 15:21 | 928288 Oh regional Indian
Oh regional Indian's picture

The sector to watch with interest and invest in if you can work out the equation is Packaged food manufacturers. FMCG, Bulk, Military, Emergency... all of them.

because even in the face of skyrocketing input costs, the ability to price at will in a world facing a huge food deficit right NOW will be an interesting game to watch.

i suppose their stocks will outperform. As will mickeyD's and dunkin donuts.

For the rest, it's a double whammy.

Caught in a real world Bi-flation madhouse.


Wed, 02/02/2011 - 15:24 | 928291 TruthInSunshine
TruthInSunshine's picture

Bernanke is 100% confident there is no problem.

Bernanke is a magician. He'll pull rabbits out of his hat, tell you that he's about to make them disappear, and then just rip their fur off.

Corporations will continue to see cost of input materials spike.

Corporations will have to choose between eating higher input costs, or passing some or all of the higher cost on to consumers.

Consumers, if producers pass higher input costs on to them, will either have to grin and bear it, and pay the higher cost, reduce the amount of producer goods purchased, or not purchase the goods.

Never mind that this is a broke dick economy.

But Bernanke knows of a magic way to ensure that the producers do not have to pass the costs on and/or the consumer can purchase more of the goods, broke dicks and all.

He will explain his magic solution on '60 Minutes' in an interview with Scott Pelley, at some point in the future, when he will also claim inflation is still too low.

Wed, 02/02/2011 - 15:29 | 928312 Sudden Debt
Sudden Debt's picture


Wed, 02/02/2011 - 15:31 | 928321 jus_lite_reading
jus_lite_reading's picture

Actually, the direct result of rising input costs is other cost cutting which we see in the monthly job cut fugures from bioPharma to manufacturing. Except of course, home decor which is seeing record years/months! LMAO

Wed, 02/02/2011 - 15:27 | 928306 Hedgetard55
Hedgetard55's picture

Money printing is default by another name - the destination - impoverishment - is the same. If Ben stops printing, first stocks, then bonds collapse. If he continues, first the dollar, then bonds, then stocks collapse.

Wed, 02/02/2011 - 15:41 | 928358 gwar5
gwar5's picture

Operation Banana default underway. Good take on gaming the sequencing.

Wed, 02/02/2011 - 15:30 | 928313 6 String
6 String's picture

One way or another, since corporate profit margins have never been sustained at these levels, they will come down--whether it because of cost-push or taxes, it'll happen.

long gdx/short russell 2000

Wed, 02/02/2011 - 15:34 | 928322 gwar5
gwar5's picture

I'm just wondering if margins even matter anymore with Benbabwe driving the banana bus.

Besides, everybody is going to have their disposable income sucked up by sovereign debt and higher oil/food prices.

Consumers are going to disappear along with margins. We're going to need to print a lot more money!

Wed, 02/02/2011 - 15:47 | 928385 Cash_is_Trash
Cash_is_Trash's picture

You may find that a German company named Giesecke & Devrient supplied Weimar Germany and Zimbabwe with banknotes:

Increasing the money supply is profitable if you're selling the paper.


Wed, 02/02/2011 - 15:53 | 928413 jus_lite_reading
jus_lite_reading's picture

Obamao has stock in Georgia Pacific and HP (the inkjet division)

Wed, 02/02/2011 - 16:03 | 928454 Cash_is_Trash
Cash_is_Trash's picture

Shameful Ben Shalom..

Man, those inkjet cartridges are gonna be worth a fortune when nations compete to make ever larger denominated bills.

Wed, 02/02/2011 - 15:32 | 928323 youngman
youngman's picture

I´ll take it one step further....profits down...means tax revenues down for the Feds and States.....more and bigger deficits....oh oh....QE what?????

Wed, 02/02/2011 - 15:39 | 928352 buzzsaw99
buzzsaw99's picture

Bernanke's final solution.

Wed, 02/02/2011 - 15:42 | 928357 Caviar Emptor
Caviar Emptor's picture

What we're really talking about here are the limits of deficit monetary policy. That's what underlies all the trends we are seeing. Bi-flation is the Bi-product of spending more than a country makes over the long haul. 

Unfortunately for Ben, it appears that the policies that worked over the past 3 decades have outlasted their useful life. As with all economic models that address a world situation that has changed drastically. What worked in the 19th century went awry in the 20th century to be replaced with new models. The longer it takes to realize this simple truth, the further off the rails the economy will go. Friedman solved the problems of the Great Depression from his armchair during the 1960s and 70s and Ben is his biggest groupie. But like a poor general, he's still fighting the last war. 

There are a whole new set of realities in the world today that remain unaddressed and worse, are being addressed in maladaptive fashion leading to dangerous imbalances. Friedman didn't envision peak oil, peak copper, food shortages and depletion of the world's oceans.  He didn't plan to accommodate a couple of billion Chinese and Indians. The plan that was hatched during the 1970s addressed inflation in the US in the context of chronic deficits. One of the ideas was to build massive overcapacity in everything, to offshore expensive jobs to kill wage inflation, and to build and enforce an economy hooked on credit to maintain growth in excess of production. And the last bit but not least important bit was to maintain a neo-colonial empire to ensure that the US could import on credit forever. The Chile coup d'etat of 1973 was something that Friedman himself endorsed and advised. 

As you can tell from the above list, the world has changed and many of those same plans that seemed like genius in the old situation have actually become the problem itself. Food inflation for example is being exacerbated by maintaining the old policies. So are structural unemployment and chronic overcapacity. These are the components of biflation that lead to margin erosion. It's all sliding in the opposite direction of what was supposed to happen. There are many layers to this. This is just a smattering. 

Wed, 02/02/2011 - 16:02 | 928450 John McCloy
John McCloy's picture

Good post. And this is why we need steroided versions of these monetary policies sprinkled in with accounting fraud simply to falsify a prosperity that once existed when we manufactured items and not paper promises.
More importantly they are yielding weaker results.
This economy now needs permanent ZIRP just have a pulse.

Wed, 02/02/2011 - 16:17 | 928502 Caviar Emptor
Caviar Emptor's picture

The core has been hollowed out.

Wed, 02/02/2011 - 16:48 | 928589 AccreditedEYE
AccreditedEYE's picture

Caviar, when are you going to start contributing to the top board?

Wed, 02/02/2011 - 16:45 | 928581 SheepDog-One
SheepDog-One's picture

Exactly how I see it, take away this ZIRP fraud and their now utterly ridiculous billions thrown in daily just to tread water and their blatant manipulations and what the hell would it all look like? Desolate wasteland.

Wed, 02/02/2011 - 16:03 | 928453 topcallingtroll
topcallingtroll's picture

stop!  You are scaring the troll.

Wed, 02/02/2011 - 16:07 | 928470 Flakmeister
Flakmeister's picture

  You clearly have thought about this. I don't think it was as Machiavellian as this though: Ideologically inspired legislation led to regulatory arbitrage. The pigmen who ran off with the money could no more fathom this argument than could my pet goldfish. They only focused on the sub-clauses in the legislation that let it occur, problem was that everyone wanted their own sub-clause.... 

Wed, 02/02/2011 - 15:41 | 928360 SheepDog-One
SheepDog-One's picture

Whaaaaaat? You mean its not as simple as 'Stocks up=higher values' theres actually many more factors in play here such as prices paid and a collapsing dollar purchasing power?

Paging Harry Wanger to HAL 3000 deck...we have a problem...

Wed, 02/02/2011 - 15:42 | 928363 duo
duo's picture

I updated my kitchen appliances in early 2009.  The Electrolux oven "sale" price is 50% higher than it was 2 years ago. 

Wed, 02/02/2011 - 15:57 | 928431 Sudden Debt
Sudden Debt's picture

2 years ago they sold at a loss. They just wanted to get rid of stock.

Wed, 02/02/2011 - 15:58 | 928432 John McCloy
John McCloy's picture

The Bernank says The Deflation is bad.
Your example proves it is bad...for corporations.

Wed, 02/02/2011 - 15:42 | 928368 InconvenientCou...
InconvenientCounterParty's picture

How will the U.S. coporate overlords pull off a new round of subsidies/supports/wealth transfer to allow them to absorb input cost increases and keep EPS up and to the right?

If GOP takes over:

-Tax cuts

-Import Trade barriers

-Preferences for producers. i.e. removing regulations

-fear-based control of dissent

If DEM's retain control:

-tax cuts

-Trade barriers

-directing funds to end-consumers. (COLA's, stamps for food, fuel and who knows what else)

-play on meme of U.S. entitlement/exceptionalism. To provide a "carrot on a stick" for the future.


Wed, 02/02/2011 - 15:49 | 928397 buzzsaw99
buzzsaw99's picture

trade barriers not likely imo.

Wed, 02/02/2011 - 16:19 | 928506 Caviar Emptor
Caviar Emptor's picture

Can't have trade barriers in a world of mutually assured financial destruction

Wed, 02/02/2011 - 15:56 | 928420 topcallingtroll
topcallingtroll's picture

Nice chart.  However we need a longer data period than just from 1998.  Otherwise the noise from period effects may be really high.  Also look at all the jigs and jags of the lines.  That is called variance and a calculation of the variance attributable to just noise (1 - the correlation coefficient) can give you an estimate of how often the relationship does not hold together.  There is clearly some relationship between PP and the inverse of the spy or margins, but Hayek cautioned all of us with his "Pretense of Knowledge" Nobe prize acceptance speech.  He also always cautioned his grad students about stochastic bias of limited data sets such as two variable models and short time periods.  The short of it is that any correlation with an individual variable will look stronger the fewer the variables correlated, such as a two variable data set shown above.  Of course there is going to be some margin pressure.  We have to have some margin squeeze and can't solve everything with QE2.  Business also has to share some of the pain of the great rebalancing.  How much of a margin squeeze we get can't be predicted just yet.  At least not by us amateurs.  It takes a lot of labor to construct a huge multivariate data set to get some good answers about the pending margin squeeze, but you should assume the fed has the capacity as well as the evil prince incarnate goldman sachs. 

Wed, 02/02/2011 - 16:01 | 928442 TruthInSunshine
TruthInSunshine's picture

Bernanke will be a martyr for Keynes and/or The House with the Red Shield, depending upon one's persuasion.

72 virgins, neunundneunzig luftballons, six pieces of silver and other tokens of wealth for your trouble, Ben...

Wed, 02/02/2011 - 16:27 | 928520 lunaticfringe
lunaticfringe's picture

The coyote's conundrum.

The only solution is to hike interest rates fast, Volcker style, kill the economy, watch the debt soar, and take your ass kicking like a man. Can the Bernank do it? Nyet. He is heap big pussy. He prefers a slow agonizing death rather than gnawing a leg off to get out of the trap. I can hardly wait to see how that 1600 SAT score works out for him. Sweet.

Wed, 02/02/2011 - 16:48 | 928587 SheepDog-One
SheepDog-One's picture

They couldnt even raise rates 1% without a total blow up. No one is the least bit willing to pay higher rates, they cant even make a profit right NOW lending out with 0% free money! No one wants a loan! No one wants any debt! This 15 minute liquidity removal dream of Bernankes is a total fraud, there IS no exit!

Wed, 02/02/2011 - 17:08 | 928641 ghostfaceinvestah
ghostfaceinvestah's picture

TD, you missed Paccar yesterday, same story.

Paccar, the maker of Kenworth and Peterbilt trucks, has a reputation for being one most efficient operators in the truck industry. But the Washington company acknowledged that it is experiencing higher costs for steel, aluminum and copper that are pressuring its margins.

Wed, 02/02/2011 - 18:11 | 928897 PeterSchump
PeterSchump's picture


Short answer is no.  Surging input prices have no effect on margins or profits.  Anyone who still thinks so was taught by an old school micro professor.  The are much better theories out there that can explain how higher input prices benefit the entire economy.  Really, let's think about this for a minute.  The US is a service based economy now.  If tangibe input goods become more expensive, the services required to reduce rising input price effects (designing smaller containers, reducing weight, optimizing supply chain, etc.) become worth more.  Now, more employees will be needed to implement ideas to reduce the effect of input price inflation, reducing unemployment and driving up wages.  This is good for the economy.  Rising input prices are also good for the environment and long term health of the planet.  Fewer inputs will be consumed in the production of an equivalent unit of output.  What we are seeing here can only lead to an improving economic picture.


I know what most of you old timers are saying, "Every time accelerating input prices have compressed margins, to the point where significant price increases are necessary, this has lead to a delta growth contraction, at a minimum in that particular industry."  Well, this time it is different.  The US economy has changed so much structurally, that there is really no economic phenomenon known to man that can derail this expansion and bull market in every asset class.  Everything will continue to expand, everything.

Wed, 02/02/2011 - 18:35 | 928986 n2dark
n2dark's picture

I junked you because your uber creative 'theory' has more holes in it than a Swiss cheese. Even though everything is possible, we are still living a world of probabilities not possibilities.

Wed, 02/02/2011 - 18:41 | 929010 PeterSchump
PeterSchump's picture

I encourage you to read it in its entirety again.  A second try may reveal more.

Wed, 02/02/2011 - 19:17 | 929136 n2dark
n2dark's picture

I'm sorry, are you being sarcastic? I really hope you are, because otherwise ...

Wed, 02/02/2011 - 21:02 | 929438 PeterSchump
PeterSchump's picture

I knew it would help ;)


Wed, 02/02/2011 - 18:41 | 929013 PeterSchump
PeterSchump's picture


Wed, 02/02/2011 - 23:00 | 929766 Quaderratic Probing
Quaderratic Probing's picture

Super computers are trading without any regard for any real world metric. Feed in cash and they trade with each other until the cash is used up. The Fed can print unlimited and the computers can buy unlimited. Companies don't have to make anything including profit anymore.
