Ciao! Keebler Elf

Apr 5, 2019   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

It was a week chock-full of good economic news and the markets reacted accordingly.  The Dow Jones Industrial Average looks to close almost 500 points higher on the week, continuing the upward trend which began earlier this year.  Furthermore, the bar for first quarter earnings has been set fairly low.  While a few companies will report earnings next week, the bulk will begin the following week.

The best news of the week was announced today when the March nonfarm payroll report indicated that 196,000 had been created in the month.  You’ll remember that just one month ago we were shocked when the February number came in at only 20,000.  As many suggested at the time, the month of February was an anomaly with a return to more normal job creation returning in March.  Adding weight to this data point, March’s ISM manufacturing index improved and February construction spending rose more than expected.  Fortunately, we have strong enough growth but not necessarily enough to force the Federal Reserve (Fed) to become more hawkish.  This week’s news will allow the Fed to retain a patient stance with interest rates.

While the economic news has been good of late, it hasn’t stopped the President from a new offensive.  President Trump’s relationship with Fed Chair, Jerome Powell, has been rocky from the start despite Mr. Powell being the President’s nominee to head the Federal Reserve.  The President believes if not for the interest rate hikes, economic growth and the stock market would be higher, and the trade deficit wouldn’t have swelled as fast.  He’s not wrong.  However, interest rates which were dropped to previously unseen levels after the financial crisis, never really regained historic norms.  Lowering them again at a time of 2% economic growth and low inflation could be like pouring gasoline on a fire.  Sometimes too much of a good thing can do more harm than good.  While it may be good for the President politically, it almost certainly wouldn’t be good for the economy in the long-run.

In company news, it seems the Keebler Elf will soon become an expat.  It was announced this week that Ferrero SpA acquired a number of cookie brands, fruit snacks, and pie crusts from Kellogg for $1.3 billion.  Aside from Keebler cookies, Famous Amos and cookies manufactured for Girl Scouts of the U.S.A will also be moving across the pond.  While we’re on the subject of food it seems Burger King is testing a new plant-based meat substitute in select markets.  If you happen to be in the St. Louis area, you will be able to test The Impossible Whopper which will be flame grilled like a regular Whopper but contain no meat.  Burger King has partnered with Impossible Foods on the burger initiative with a market for meat-free substitutes growing to an estimated $1 billion in coming years.  Not to be outdone, Nestle plans on bringing its Incredible Burger to Europe this month followed by North America by the end of the year.

Last week I noted that McDonald’s will no longer be fighting against raising the minimum wage and even speculated that this could be a strategic move by the company to put pressure on smaller chains and mom-and-pop alternatives.  It seems McDonald’s isn’t alone in its thinking.  This week Target announced it too will be dropping its fight against lower wages.  The company plans on raising its starting wage to $13 per hour with an incremental plan to hit $15 per hour by the end of 2020.  This puts it right smack in the middle of the minimum wages at Amazon ($15/hr) and Walmart ($11/hr).  It does appear the tide is turning.  The question is how long before these higher wages translate into higher prices and an increase in inflation?

In closing, I bring you more unusual news.  What I thought was an April Fool’s story turned out not only to be true but also somewhat disturbing.  It seems in the Soviet Union there was a candy bar by the name of Hematogen that was a favorite among children.  It was a chocolaty, chewy snack with an oddly metallic aftertaste.  It was made with beet sugar, condensed milk, and sugar syrup but also had a secret ingredient: cow’s blood.  It seems this treat was created as a kid-friendly iron supplement at a time when food scarcity was an issue.  A generation of children came to love the candy bars which were cheaper and more accessible than candy.  Now, these same Russian adults have a soft spot for Hematogen.  You see, it is still in production and can be purchased on Amazon.  If you’re brave enough to order some, you’ll have to let me know how they taste.  Now you know.

April 5, 2019

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