Burger King: Perfect Example of Current Inflation Pressures

Burger King’s decision this week to raise the price of a double cheeseburger from $1 to $1.19 and to remove one slice of cheese from the double cheeseburger on its dollar menu (they now call it the BK Dollar Double) is a perfect example of the dilemma that major U.S. corporations are dealing with in the current economic environment.

Their costs are going up on the producer level because of higher commodity prices and in a healthy economy, Burger King would have simply raised the price of the burger. However with demand weak, they are forced to cut their offering by giving you only 1 instead of 2 slices of cheese if you order from the dollar menu. For those people that still want 2 slices of cheese on their hamburger – be prepared to pay up. While $1 menu items can boost traffic and sales, restaurant operators can lose money if too many of those sales come from money-losing items and this problem is exacerbated by rising prices.

This week, we saw a sharp increase in producer prices but virtually no growth in consumer prices. Producers are having a tough time passing on higher costs to consumers and are therefore left with the tough choice of either:

1) Eating the cost
2) Skimping on the product or
3) Risk losing customers by raising the price

None of these options are good ones but this is the consequence of operating in a country with an unemployment rate of 9.7 percent.

This is inflation – disinflation in the works my friends.

In the meantime, if you are hungry for a double cheeseburger, eat as many as you can by April 26 because that is when the price increase will be implemented!

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In the Financial Papers: Today’s Top Forex News 07.15.08

kathysmallHere is the “In the Financial Papers Radio Broadcast” (Length: 5:47 minutes). The player should load automatically. Please let me know if you like it. Contact Kathy

Read my Daily report on DailyFX.com

In the Financial Papers:

 

Podcast Covers:
Fannie, Freddie Tumble on Concern U.S. Rescue Will Sacrifice Shareholders
Dollar Drops to Record Low
Retail Sales, Producer Prices
Mortgage Insurers Raise the Bar
Paulson Drove Plan to Shore Up Fannie and Freddie
IndyMac Reopens, Halts Foreclosures on Its Loans
Bailout fails to calm nerves
China Falters on Inflation Fight
China Sees Slower Growth in Forex Reserves

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Dollar Falls to Record Low: Bernanke, Please Save Us!

The US dollar fell to a record low against the Euro as traders around the world grow increasingly worried about the health of Fannie Mae, Freddie Mac and the overall US banking sector.

dollar071508
(Source: My Technical Analyst Jamie Saettele at DailyFX.com)

The collapse in the dollar today is entirely due to risk aversion and flight to safety because gold prices are also above $980 oil prices and oil prices are above $146 a barrel.

Yesterday, the rise in the VIX (to a 3 month high) already indicated that the markets are nervous and are not buying into Paulson’s proposal for a larger credit line and an equity investment. They know that this is not the answer to current problems in the financial markets especially since the troubles have reached beyond Fannie Mae and Freddie Mac.

When banks like Washington Mutual coming on the wires reassuring investors and depositors that they are well capitalized – it is clear that they are worried about the same lines of depositors demanding a withdrawal as IndyMac.

Everyone believes that the Fed is running out of magic bullets and this is exactly the time when the markets need a dazzling surprise from the Fed.

At the end of the day, the US government will come up with something.

Retail sales Weakest Since Feb

Unfortunately retail sales were also weak. It rose 0.1 last month compared to the market’s 0.4 percent forecast. Excluding spending at gas stations, retail sales actually dropped 0.5 percent. Consumers cut back on spending for motor vehicles, food and electronics and furniture. Discretionary spending has really been hurt by higher gasoline prices and a weak labor market.

Producer Prices Grow by Fastest Pace Since 1981

Producer prices were mixed with headline figures rising more than expected but core prices falling short of expectations. This drove the annualized pace of PPI growth hit the highest level since 1981.

And thus we have the Fed’s problems – strong inflationary pressures in the face of weak consumer spending and a falling stock market.

Bernanke – Please Give us a Rate Cut!

Forget about a rate hike this year and let’s start talking about cutting interest rates once again. It is time for Bernanke to shift his focus back to growth and supporting the financial markets. Cutting rates will of course come with the risk of even higher oil prices, so it may unrealistic.

Instead, they will probably opt for more creative measures such as offering Fannie and Freddie access to emergency financing.

Keep an eye on Bernanke’s testimony on the Economy and Monetary Policy at 10 am because MAYBE he will have some tricks in his bag.

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In the Financial Papers: Today’s Top Forex News 07.09.08

kathysmallHere is the “In the Financial Papers Radio Broadcast” (Length: 6:01 minutes). The player should load automatically. Please let me know if you like it. Contact Kathy

Read my Daily report on DailyFX.com

In the Financial Papers:

 

Podcast Covers:
Canadian Dollar Skyrockets After Housing Market Numbers and Oil
Geopolitical Tensions Weigh on Euro – Iran tests missiles
Trichet Reminding the Markets that they have no bias > last week’s hike was meant a “signal.” ECB is determined to re-establish inflation target.
Hedge Funds Have Worst First-Half Performance in 18 Years, Dropping 0.75%
Australian consumer confidence hits 16 Yr Lows
Fed Bernanke Ready to Extend Bank Aid
Asian Oil Usage Reined in by Reduced Subsidies and High Prices
Oil Prices Sees Largest One Day Drop Since 1991

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In the Financial Papers: Today’s Top Forex News 06.30.08

kathysmallHere is the “In the Financial Papers Radio Broadcast” (Length: 7:02 minutes). The player should load automatically. Please let me know if you like it. Contact Kathy

In the Financial Papers:

 

Podcast Covers:
China’s Export Machine Threatened by Rising Costs
Business Scrambe to Offset Rising Costs of Transportation
Jobs Report will Provide Clues on Growth and Inflation
Fed’s Priority is Likely to be Oil Price Shock
Oil Rises to Record Above $143 on Concern Iran Supplies May Be Disrupted
Stock, Bond Slumps Signal Worse Than ’94 on Inflation
Yuan’s Path Seems Up Eventually
Dollar May Well Survive the Perfect Storm
Central Banks Focus on Rising Prices
Australian Wages Stable Amid Tight Market

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