Monday, 11 January 2010 05:00

Is My Warning of the Risks of a Stagflationary Environment Coming to Fore?

Last year, as the debate between the inflationists and the
deflationist was raging, I stepped in with a little empirical research.
I try not to make predictions and prognostications, but rather stick to
being prepared for the most likely events. I stated that if I had to
pick a scenario, the most likely as I was would be stagflation wherein
high input costs would co-exist with a deflationary drop in asset
values, creating a "worst of both worlds" style environment. Well,
Alcoa has given us some anecdotal evidence of the likelihood of such an
occurrence approaching.

Alcoa's Quarterly Profit Trails Estimates on Higher Energy, Currency Costs

Jan. 11 (Bloomberg) -- Alcoa Inc., the largest U.S. aluminum producer, reported fourth-quarter profit that trailed analysts’ estimates as the company faced higher energy and currency costs...

Profit was hurt by higher energy prices and the dollar’s decline against the euro and the Brazilian real, Deutsche Bank AG analyst Jorge Beristain said...

“This quarter was disappointing, especially with the energy costs, and having to buy primary aluminum on the open market,” said John Stephenson, who helps manage C$1.5 billion ($1.45 billion) including Alcoa shares at First Asset Investment Management in Toronto. The miss on earnings was “significant,” he said.

Aluminum Prices

Alcoa’s sales benefited from aluminum prices that rose 18 percent in the quarter to $2,230 a ton on the London Metal Exchange. The price Alcoa charged customers for the metal increased 9.3 percent from the previous quarter, the company said. Revenue exceeded the average estimate of $4.84 billion in the Bloomberg survey.

“They are benefiting partially from higher aluminum prices, but the cost honeymoon the company has had for the past nine months is rapidly drawing to a close,” Beristain said in a Jan. 5 interview. “Some input variables are starting to move against them as foreign currencies strengthen against the dollar.”

Chief Executive Officer Klaus Kleinfeld cut about 21,500 jobs from June 2008 through December 2009 as the deteriorating global economy reduced demand for aluminum. In March, he pledged to eliminate $2.4 billion in annual costs for items from raw materials to transportation, and had completed 83 percent of that goal by the end of the third quarter.

Also from Bloomberg: Stocks, Copper Gain While Dollar Falls After China Reports Record Imports

Copper futures for March delivery climbed to $3.441 a pound in New York. Shipments of copper and copper products into China rose to about 369,400 metric tons in December, the Customs General Administration said yesterday in Beijing. That was up 27 percent from November and 29 percent from a year earlier, according to Bloomberg data. Record imports in last year’s first half helped copper prices more than double in 2009.

I have published a decent amount of opinion on the true historical performance of popular inflation "hedges" as well as the probability of stagflation being greater than hyperinflation or deflation, outright. See the many articles below.
The Butterfly is released! I
am releasing the balance of the Butterfly Effect (see The Asset
Securitization Crisis Part 27: The Butterfly Effect) to the public in
anticipation of the next two installments of the Asset Securi...
Tuesday, 21 October 2008

Economic contractions AND rising prices, dare Reggie utter the "I" word - Enter a global phenomenon Roadmap to the crisis. Before we go on with this installment let's get a firming of the definition of the term "inflation" with a little help from Wikipedia: Inflation can be considered a general ... Monday, 03 November 2008

Reggie Middleton's Take on Investing for Inflation, pt. 1 I have looked into potential inflation
hedges/speculative trades and decided to share some of my thoughts with
the blog. Despite the rumblings of many, there are already signs of

Wednesday, 10 June 2009
Reggie Middleton's Take on Investing for Inflation, pt. 2 As stated in part one of my inflation series of blog posts, I am not sure if we will have rampant inflation in the near to medium term (and I believe anyone who thinks they can acc
Friday, 12 June 2009

Reggie Middleton's Take on Investing for Inflation, pt. 3 The Performance of Inflation Correlated Assets: Reggie Middleton's Opinion This is part 3 of my thoughts on investing in inflationary times (see Reggie Middleton's Take on Investing for Inflation.. Friday, 12 June 2009

Reggie Middleton's Take on Investing for Inflation, pt. 5 In continuing with my rant on investing during inflationary periods (see Reggie's take on investing for inflation parts 1, 2, 3 and 4 for the background to this article)), I am addressing ass
Wednesday, 17 June 2009
More on my stagflation rant ...lengthy. I noticed that some who have read the "Reggie Middleton's Take on Investing for Inflation, pt. 5" are looking at inflation and deflation as being mutually exclusive. ...
Wednesday, 24 June 2009.
... continues to gain from rising oil prices. Nevertheless, the slowdown in the US economy and spiraling global inflation are likely to hurt economic growth in Asia and the Middle East. This factor could...
Thursday, 14 August 2008

China Macro Update China: An Insight into its Past Growth and the Future (also of interest is the HSBC opinion and 2H08 update) China’s massive growth in the last decade has taken the world by surprise. Curr
Tuesday, 19 August 2008

The Asset Securitization Crisis Part 27: The Butterfly Effect The Butterfly Effect: Paulson, Bernanke, the Asset Securitization Crisis & their impact on the Industrial and Manufacturing Sectors - Part 27 of Reggie Middleton on the Asset Securitization Crisis
Monday, 06 October 2008

Are Energy Prices Curtailing Growth? ...rew 1.0% and Japan rose 5.4% in terms of real GDP, while the U.S. and U.K. fell 0.8% and 3.0%, respectively. Inflation skyrocketed during these times; for instance, U.S. inflation peaked at 13.5% in 1...
Friday, 18 July 2008

GE and the Uber Bank Forensic Analysis lts in its mortgage and credit card portfolio. GE’s higher loss provisions, going forward, and rising inflation will impact the company’s profitability. GE also plans to sell its applian...
Wednesday, 09 July 2008

Last modified on Monday, 11 January 2010 05:00