"Get Ready For Margin Collapse" Goes Mainstream

Submitted by Tyler Durden on 02/13/2011 22:11 -0500

First it was "Get Ready For Higher Food Prices" going mainstream... Now, logically following, it is "Get Ready For Margin Collapse." As Zero Hedge has long been warning, the one immediate consequence of surging commodity prices as a result of endless liquidity, is a collapse in corporate margins. Now, about 6 months after we first broached the topic, it has finally hit the mainstream media. The WSJ highlights what is so obvious, it is no wonder no sellside "strategist" is willing to touch the topic with a ten foot pole: "This earnings season has seen a much-welcomed return to revenue growth, giving investors another reason to push stocks to two-year highs. But beneath the surface lurks a fresh worry: For many companies, the cost of raw materials is rising at a faster pace than revenue. Blame it on soaring prices of everything from cotton to copper and corn. That has squeezed profit margins more markedly than many analysts anticipated—and is serving as a worrying sign for future earnings." But yes, aside from the painfully obvious collapse in margins, and thus plunge in net income (sorry, companies can't fire their skeleton crew workers any further) which will mean 2011 S&P 500 EPS will come far, far lower than prevailing consensus, everything is fine...and don't forget to BTFD.

Rubber Hits An All Time High As Last R-Bubble Approaches Escape Velocity; Rubber Curve In Backwardation

Submitted by Tyler Durden on 02/13/2011 22:45 -0500

Now that the Rare Earth bubble has come and gone (and may well come back again depending on how much China wants to stretch its political muscle), the Rice bubble is in progress, and may see prices going back to the $24 range we saw last in 2008 when net CBOT non-commercial spec contracts were approaching the 8k levels, the last R-bubble prediction is coming true. Back in October, Zero Hedge said the next bubble are the 3Rs -Rare earths, Rice and Rubber. Lo and behold, rubber just hit an all time high on the Tocom, after returning 30% YTD. And far more importantly to those who care about such things, the rubber forward curve is in backwardation. No need to explain what that means.

Finally! Atlas Shrugged (Part 1) will come to theaters on April 15th.

America's inflation alarm is growing ever louder,

 
Staple Food Prices Fastest Rise in Five Years .


Corn’s rally feeds a ‘global food fight’


Kraft says more price increases ahead



Derivatives: The Real Reason Bernanke Funnels Trillions Into Wall Street Banks.  

Here is a quote from the article: "Of course, Bernanke tells the public and Congress that the reason we need low interest rates is to support housing prices. He doesn’t mention that $188 TRILLION of the $223 TRILLION in notional value of derivatives sitting on the Big Banks’ balance sheets is related to interest rates. Yes, $188 TRILLION. That’s thirteen times the US’ entire GDP, and nearly four times WORLD GDP."