WASHINGTON. Friday trading action looks just as weird as usual. Stocks and averages wobbled in the Red Zone Thursday as they digested the latest news from the US Federal Reserve. But stocks are rallying today, allegedly on renewed optimistic rumors that some kind of US-China trade deal might actually happen next week. Meanwhile, already wobbly Kraft Heinz (trading symbol: KHC) shares took a big swan dive, plummeting over 25 percent as we write this. We wonder if Warren Buffett regrets his big investment in KHC at this point.
Kraft Heinz and many of the company’s brands are not doing well with consumers
It’s easy to attribute today’s big drop in Kraft Heinz shares to the poor quarterly earnings numbers it just reported. Sales, even of major product lines, looked sickly, and profit figures notably declined from the previous year-ago quarter. But making matters worse, management also announced the government was investigating its accounting methods and related issues. That immediately raised a big, red flag for KHC investors, many of whom clearly decided to head for the exits today.
ZeroHedge weighs in on the Kraft Heinz nightmare
ZeroHedge elaborates further. (Italics and bold print via ZH.)
“Kraft Heinz… [wrote] down the value of some of its best-known brands in an acknowledgment that changing consumer tastes have destroyed the value of some of the company’s most iconic products.
“This is not your typical ‘reset the base and everything will be fine’ story; the earnings report was ‘disastrous’[.]”
“Analysts at JPMorgan, Stifel, Piper Jaffray, Barclays and UBS cut their ratings on the stock following what Stifel described as a ‘barrage of bad news: Quarterly profit missed estimates, the outlook for 2019 was disappointing, and Kraft Heinz cut its dividend, lowered profit-margin expectations and took a $15.4 billion writedown on key brands.’
“Bear in mind that before this ‘disaster’ 13 analysts had buy reccs, 7 holds, and only 4 sells…”
Leave it to those overly bullish Kraft Heinz sell-side analysts to miss the obvious.
Sorting out the latest Fed minutes
Moving on from Kraft Heinz, let’s return for a moment to the Fed’s Wednesday afternoon opinings. Released as usual at 2 p.m., the Fed minutes pinpointed downside risks to the U.S. economy that worried them. Notably, they referenced with concern what they called “a rapid waning of fiscal policy stimulus, or a further tightening of financial market conditions.”
In other words, the current Fed cut off the feedbag way too soon, and with too much obvious relish. This columnist, along with many others, has been telling these geniuses the same thing for over a year.
Even more interesting, the Fed hinted it might just conclude its aggressive, so-called balance-sheet normalization drive – i.e., selling off its Great Recession accumulated bond inventory – more quickly than it estimated earlier.
If actually true, that would be a big plus for stock market traders and investors for one simple reason. Selling off their bond inventory at a brisk clip, when added to the Fed’s previous, relentless interest rate increases effectively tightened the money supply even more. Evidence: the housing market, for one, has exhibited zero growth for months now due to the higher interest rates the Fed induced.
This means another leg of Fed monetary policy offered additional anti-inflationary overkill. And that overkill was absolutely not necessary, given the near-absence of inflation for the better part of two years.
Will the Fed’s policy backoffs, from interest rates to bond dumping, stave off the recession they’ve nearly caused?
By holding off, for now, on further interest rate increases, and by stopping its ceaseless, massive dumping of its bond inventory, the Fed is subtly telling us, in Washingtonspeak, that they really screwed up. But hey, that’s why they make the big bucks, right?
Whether the current Fed policy of stasis will actually halt the recession that wants to develop remains to be seen. At the very least, America’s monetary Royal Smart Guys seriously blunted the economic recovery the country’s middle class has longed for since Barack Obama stoutly prevented it from happening for eight long years. Washington’s elites these days are probably dumber than the current management of Kraft Heinz.
Economic tea leaves offer evidence of the Fed’s damaging policies in action
Wednesday’s words of wisdumb from the Fed led to a rally in stocks, just as second thoughts led to the market’s Thursday drop. Also not helpful: Freshly reported US economic data Thursday confirmed that the country might be on the verge of admission to the fiscal ICU.
The Philadelphia Federal Reserve business index experienced a whopping decline from 17 in January to just 4.1 in February from 17. Many economists expected a decline, but only a few points, and markets hate when estimates prove to be that far off the mark.
On the plus side, December durable goods orders, as reported by the US Department of Commerce, actually rose 1.2 percent.
Bottom line: The Fed did take the correct measures to begin returning the US banking and monetary systems to “normalcy.” But they did it far too fast and far too aggressively. And they continued those wrong moves just as what was left of the America middle class had begun to recover. As always, it’s far past time for Washington’s self-important eggheads to wake up and smell the coffee. They’re (allegedly) working for us. We’re not working for them.
More positive US-China trade breakthrough rumors excite Friday’s bulls. But why?
Helping stocks today is the latest word from the Wall Street and Washington, D.C. rumor mills that US and Chinese trade negotiators are cobbling together some kind of memoranda of understanding (MOUs) on trade. Sounds good.
But again, remember Washingtonspeak. In international negotiating parlance, all negotiators are agreeing to is the shape of any agreement that might get put into place. Meaning that even if both parties sign it, it doesn’t mean anything. It’s a little like the so-called Middle East “Peace Process.” That “process” has gone on for over 40 years. So where’s the “peace”?
The Chinese are hell bent on becoming the 21stcentury’s dominant power. Apparently they plan to do that by stealing all the Western technology they can steal or otherwise co-opt. They’ve been doing it for decades and they’ve been massively rewarded for it. If anyone thinks that this massive Communist government will cease and desist its thievery, they’ve got another thing coming.
The problem negotiating with Marxist, Communist, Socialist governments. They lie.
Problem is, as necessary as Trump’s negotiating stance has been in getting the Chinese government’s attention, some US businesses are genuinely hurting.
And, given economic reality, plus the short attention span of American businesses and citizens alike, pressure on the administration to at least partially cave and get something done can only grow prior to Election 2020.
Apparently, the Chi-coms are already offering to “concede” on agricultural trade issues. That would take pressure off the administration by giving American farmers and the US agricultural industry time to recover before November 2020. And this was the constituency so crucial to President Trump’s “shocking” 2016 win.
The Chinese are cleverly manipulating the agricultural issue – which they, themselves cleverly instigated with their own retaliatory tariffs. But they continue ignoring the vastly more important (in the long term) issue of rampant US technology and patent theft, which they have no intention of giving up.
We must always remember: Marxist, Communist and Socialist governments will ultimately sign any agreement. After which they’ll ignore it. Then they’ll keep on doing what they’ve always done: undermine any individual or country that’s not theirs.
Today’s mid-morning wrap
We continue to enjoy our current, if furtive Wall Street rally. But remember: it could turn on a dime if this trade war doesn’t pan out very well for the US. And history tells us that it won’t.
As of approximately 11:30 a.m. ET, the Dow Jones Industrials are up 187 points, a 0.72 percent gain thus far. The broader based S&P 500 is doing slightly better, up a bit over 67 points for a nearly 0.85 percent gain. The tech-heavy NASDAQ is in the middle of the pack, up 17.62 points for a 0.63 percent gain. Looks like a positive close to end the week. But in this market, don’t ever bet on a sure thing. Like the shares of Kraft Heinz.
— Headline image: Bottle of Heinz Ketchup backing up a bottle of French’s Mustard on a restaurant table.
(Image via Wikipedia entry on Heinz Ketchup, CC 3.0 unported license.
Trade dress and logo registered trademarks of Kraft Heinz. Fair use in discussion of company.)