Feb 14. Food prices rising
Thursday’s rise in yields was erased Friday, with longer maturities leading the way. Whenever red/gold pack spread gets around 300 it tends to fall back, dropping 8.75 bps Friday to 291.5. 2/10 treasury spread fell from 287 to 281.
–Food prices are getting more press. I saw a press piece about cold weather in Mexico and the US southwest causing produce prices to “skyrocket”. There is a note on ZeroHedge about rubber making a new high– just another commodity with a curve now in backwardation (nearer maturities more expensive than deferred, indicating shortages/strong demand). There was a huge jump in restaurant chain stocks last week, led by Panera. Why, it’s a triumph for US capitalism…even Krispy Kreme doughnuts is up 37% in the past three months. I would have imagined that higher input costs would be quite negative for the bottom line of restaurants, but that idea is not working for now. In terms of equities in general, I saw a CNBC piece where the commentator was comparing stock price action with that of 1982 forward. Maybe the price action is similar, but back then long bond rates were around 13% or so, the drop in rates was a HUGE tailwind for stocks. Also, there are comparisons between the fall of the Berlin Wall and Egypt. Germans still spoke the same language, the west was well developed, and East Germany was absorbed. Though it’s absolutely amazing to see the transformation in mideast states, I don’t know that the comparison quite holds.
