Financial topics

[Higgenbotham]

Kraft Heinz loses a lot of cheese as earnings send stock plunging toward record low

Published: Feb 22, 2019 10:02 a.m. ET

• Without adjustments, that bottom line looks much worse. Kraft Heinz reported quarterly losses of $12.61 billion, or $10.34 a share, thanks to a write-down of more than $15 billion related to a declining valuation of several of its businesses, most notably the Kraft and Oscar Mayer trademarks.

• The company slashed its dividend by more than a third, to a quarterly rate of 40 cents a share from 62.5 cents a share.

• Oh, there is also an investigation into Kraft Heinz’s accounting that resulted in a subpoena from the Securities and Exchange Commission that the company disclosed in its announcement.

Executives did not say that the problems would be solved in 2019, either. In fact, they pointed toward 2020 while predicting an adjusted Ebitda profit total of $6.3 billion to $6.5 billion for this year, down from $7.08 billion in 2018 and well lower than the average analyst estimate of $7.5 billion, according to FactSet.

https://www.marketwatch.com/story/kraft ... =bigcharts

We talked on this board about how companies like Procter and Gamble will suffer. This would be similar. It'll be generics or less to eat for a poverty stricken population.

This company was one of Buffet's favorites. Buffet is 97th percentile, and that works great when a 100 mph wind is at your back, but not so great when normal times of past centuries return, or worse.

[Higgenbotham]

2011.

Bill Gross has said the same type of thing - that investments should be made in dividend paying staples like Procter and Gamble.

I used to work for a consumer products company in the manufacturing plants (food processing). Generally, this information should be freely available but I can tell you the advertising and other non manufacturing related costs are a larger percentage of the price tag on the shelf than the manufacturing cost itself. The company sold finished product for about $3 per pound, of which overhead was about half, manufacturing cost about 30 percent and profit about 20 percent. The manufacturing cost included all processing and packaging to the point of transport.

Seems to me that in the next great depression entrepreneurs will find ways to bulk manufacture and deliver things like laundry detergents for a fraction of what the large consumer products manufacturers are able to.

I think the problem a lot of these guys like Yastrow and Gross and Bernanke have is they have never manufactured anything and have no concept of how overheads can be shaved to the bone by private entrepreneurs in such a way that publicly traded companies will see none of the profit whatsoever. Given that it wouldn't take much of a reduction in sales (less than 40 percent, I would think) to render a behemoth like Procter and Gamble nonprofitable, I think any investment in even a supposedly safe company like that is extremely risky.

For Procter and Gamble,

Period Ending Jun 30, 2010 (All numbers in thousands)

Total Revenue 78,938,000
Cost of Revenue 37,919,000 (48%)
Selling General and Administrative 24,998,000 (32%)
Operating Income 16,021,000 (20%)

Cost of Revenue (or Cost of Goods Sold) is generally considered to be manufacturing cost.

P&G doesn't have as much overhead and income as the company I worked for (52% vs 70%) but private competitors still have a healthy chunk to go after and consumers have a healthy chunk of potential savings to realize. This company is a sitting duck in my opinion.

[Higgenbotham]

It has occurred to me many times that I should "dumb myself down," but
I just can't do it.

I dumbed myself down in 2014 as a temporary fix in order to save myself. If you tell yourself it's temporary, you just may be able to do it. You can tell yourself that once you've dumbed yourself down and built your reserves back up, you can then resume being your old self when the time looks right. The stupidity won't last forever.

That might involve, for example, publishing articles that you know are really stupid but that the masses will love and you will be able to get paid for somehow, as a means to a greater end.

[Higgenbotham]

As I've noted recently, pretty much everything that the posters on this board were saying near the 2009 low in the stock market will eventually prove to be correct. The 97th percentile was smart enough to delay the day of reckoning for a few years, but foolishly did so because the eventual result will be a dark age rather than a prolonged greater depression. The mistake I made was believing there was no way they were stupid enough to do it nor clever enough to pull it off as deftly as they did. When Bernanke said circa 2001 that he would print money to stave off the collapse I thought he was bluffing, that he wouldn't be stupid enough to do it. How wrong I was. Then I thought he wouldn't be a clever enough technician to pull it off without some kind of disaster happening. How wrong I was. The Fed proved to be truly clever and outstanding technicians.

[John]

> As I've noted recently, pretty much everything that the posters on
> this board were saying near the 2009 low in the stock market will
> eventually prove to be correct. The 97th percentile was smart
> enough to delay the day of reckoning for a few years, but
> foolishly did so because the eventual result will be a dark age
> rather than a prolonged greater depression. The mistake I made
> was believing there was no way they were stupid enough to do it
> nor clever enough to pull it off as deftly as they did. When
> Bernanke said circa 2001 that he would print money to stave off
> the collapse I thought he was bluffing, that he wouldn't be stupid
> enough to do it. How wrong I was. Then I thought he wouldn't be
> a clever enough technician to pull it off without some kind of
> disaster happening. How wrong I was. The Fed proved to be truly
> clever and outstanding technicians.

You've forgotten that Bernanke wrote his PhD thesis "proving" that the
Great Depression could have been avoided by lowering interest rates a
couple of points.

I wrote a lengthy, detailed analysis of Bernanke's reasoning in:

** Bernanke's historic experiment takes center stage (27-Aug-2007)
** http://www.generationaldynamics.com/pg/ ... tm#e070827

As I wrote in that article, Ben Bernanke was putting into practice his
core beliefs, acquired on his grandmother's knee as a child in the
1960s: That the 1930s Great Depression could have been avoided, and a
future Great Depression can be avoided, by injecting money into the
economy.

[Higgenbotham]

You've forgotten that Bernanke wrote his PhD thesis "proving" that the
Great Depression could have been avoided by lowering interest rates a
couple of points.

He may have proved that the Great Depression could have been avoided, and he may be right. But this is not the Great Depression.

Bernanke had 30 years to think about that. A lot of my views have been altered after thinking about them for 30 years while watching things unfold. I suspect his views were also altered at least somewhat, but he needed a job, and the 97th percentile was willing to hire him and put the risk in his hands, so he dumbed himself down and/or engaged in delusional thinking, closed his eyes, printed money, and held it off on his watch so he could collect a nice retirement check and supplement his retirement with a few lectures a year.

Bernanke is a very smart fellow and I think it's at least crossed his mind that he left the world a worse place for his role in it, but I doubt he will ever say it, not even in confidence.

And so we move into the new dark age.

What I learned is that Bernanke is not me and he was willing to be a tool for the 97th percentile. Einstein regretted being a tool for the 97th percentile and tried to undo some of the damage, but was unable to.

[Higgenbotham]

2010. He dumbed himself down and allowed himself to be used as a tool for the 97th percentile.

The above post reminded me of one really funny story I read about Bernanke's incompetence. I'll relate it as best I can remember but it is all accessible. Throughout the first half of 2007, Bernanke was stating that "subprime is contained." Granted, he might believe that or not believe it but it's what comes next that is so hilarious. Around mid July 2007, subprime actually started to collapse and spread. By mid August there was a real problem. So what did Bernanke do? He flew out to Newport Beach, CA to talk to some hedge fund managers to get a grip on the situation and understand why there was a problem. They told him point blank that if something wasn't done by the next morning that the stock market could be down 2000 points (or something like that). I can't remember all the details but the gist of it was that Bernanke had to get clued in by some hedge fund managers that there really was a serious problem. It's been 3 years, but I remember reading that and laughing so hard I just about fell off my chair.

What we are witnessing is essentially the breakdown of our modern-day banking system, a complex of leveraged lending so hard to understand that Federal Reserve chairman Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August.

http://money.cnn.com/2007/11/27/news/ne ... /index.htm

There's a lot more out there on this, but this is the first reference I came up with.

... Bernanke had to get clued in by some hedge fund managers that there really was a serious problem.

Okay, now I'm legitimately scared, and somewhat amazed that we've made it thus far.

A bit more from the same time period:

I and other PIMCO professionals were attempting to describe to high-ranking Treasury and Fed officials the near-frozen commercial-paper markets and the draining confidence of bond and stock investors worldwide. It was Thursday, August 16. Stocks had closed down 210 points and were expected to open hundreds of points lower on Friday.

The modern financial complex has morphed into something unrecognizable to many astute market veterans and academics. Bernanke’s fellow governors and Hank Paulson’s staff at the Treasury spread their roots during an era in which traditional banking activity – lending out deposits backed by a certain level of reserves – was the accepted vehicle for liquidity creation.

But if Paulson cannot prevent expected declines of 10-15% in national home prices over the next several years, it is problematic as to whether Bernanke can substantially cushion them either. First of all, the aforementioned lack of “appreciation” of a modern-day shadow banking system has put the Fed far behind the 8-ball in its reflexive duty to lower interest rates in an anticipatory fashion. Mortgage credit has been contracting on the ground level for all of 2007 with individual, small, and then national mortgage brokers and originators closing their doors. Legal threats and regulatory pressures have compounded the credit implosion. As a result, home prices, as shown in Chart 1, have been declining for nearly 12 months and only now is the Fed responding to an unfolding crisis.

http://www.pimco.com/LeftNav/Featured+M ... r+2007.htm

Once Bernanke finally got around to shopping around for answers, the media caught wind of it and Bloomberg, I believe, requested a copy of his appointment book under the Freedom of Information Act for this time period. As I recall, he stonewalled for several months before finally turning it over. My recollection on this particular episode may not be entirely accurate (in fact, now that I think of it, it was Geithner's appointment book they may have been after) but this story seems to give a good summary of what was going on during that time period regarding the revolving door of meetings in a belated attempt to get Bernanke up to speed:

http://www.bloomberg.com/apps/news?pid= ... 21h4HAD6Ag

The next part of this unfortunate display of incompetence was Bernanke then panicked and abruptly slammed interest rates down, probably overshooting, although that is a matter of opinion and can't be proven. It's also a matter of opinion as to whether that potential overshoot was at least partially responsible for oil prices shooting up to $147 per barrel the next Summer and collapsing the economy. My opinion is yes, that had a lot to do with it, but that can't be proven either.

[Higgenbotham]

I wrote a lengthy, detailed analysis of Bernanke's reasoning in:

** Bernanke's historic experiment takes center stage (27-Aug-2007)
** http://www.generationaldynamics.com/pg/ ... tm#e070827

In a speech given on November 21, 2002, Bernanke laid out a number of Fed interventions that might take place if the economy became increasingly distressed.

I will now analyze that speech, but I must begin by saying that his reasoning is extraordinarily shallow. He says things that simply don't make sense, and which time has now shown to be completely wrong.

Still, it's a very important speech there's every reason to believe that Bernanke STILL believes almost everything he says there, and because the Fed interventions that he describes are probably going to take place in the next few months. So the speech is important because it provides something of an additional roadmap to the near future.

But here's the interesting question: As the economic situation becomes increasingly severe, how far will Bernanke go in using the tools described?

Will he go so far as to use all the tools available to him to flood the markets with money, and print so much money that inflation runs away and the dollar essentially becomes worthless?

I've been predicting since 2003 that we're in a long-term deflationary trend (like Japan in the 1990s). This is based on the adjoining graph that shows that long-term inflation is running above the exponential growth trend line and so, by the Law of Trend Reversion, must fall below the trend line for a long period of time. This means that the Consumer Price Index (CPI) has to fall 30% or more, which would indicate a great deal of deflation.

However, I've always had in the back of my mind that Greenspan, and now Bernanke, might defeat this trend by making the dollar worthless.

I actually don't believe that will happen. A policy of that type would have to be sustained for several years to have such a deleterious effect, and within a few months it would be seen to be failing.

But up to that point, we can expect to see Bernanke's Great Historic Experiment proceed with an increasingly aggressive policy of injecting money into the economy, until it becomes clear that such a policy is a total failure. (27-Aug-07)

[Higgenbotham]

In hindsight, we now know what possibly could not have been predicted back in 2007.

The Fed bought over $4 trillion of bad mortgages from the banks and other long term debt, put them on the Fed's balance sheet, then about 9 years after 2007, started letting them run off the balance sheet, where they now have something like $3.8 trillion in long term debt and are aiming to stabilize the balance sheet at something like $3.5 trillion, according to recent news, for the time being. That may not be all accurate, but it's generally right. I haven't been paying much attention lately. On the other side of the ledger is an equal amount of "printed money".

Now, if you had asked me back in 2007, given the circumstances and parameters of the 2008 crisis, whether the Fed would have recommended the $800 billion TARP in the Fall of 2008 as a temporary rescue, I would have said, I don't know, but maybe.

If you had asked me about the $4 trillion, I would have said, no, they will not do that, definitely not, it puts the system in too much jeopardy. They will definitely not be stupid enough to do that. And I think what you said in 2007 was right. If people were paying attention, there would have been a run on the dollar at some point risking that the dollar would be worthless today, despite the common refrain of what else are you going to use. Instead, there was a cryptocurrency bubble which amounted to nothing because it was nothing. Lucky Fed.

I would add that it's recently been telegraphed they will stay at about $3.5 trillion in order to stabilize things after the stock market slid 20% last year. The original plan was to have all of the long term debt off the balance sheet years ago because the economy would be growing faster than it has.

[aeden]

As we know, Sogo Shosha groups are sufficiently diversified to withstand periodic downturns in certain sectors of the economy.

Even still, the market share of the Sogo Shosha has declined because numerous manufacturers in a variety of industries have opened up plants in countries with weaker currencies and because companies have started to manage their own international trade. This we noted clearly in the Forums on the signal that we confirmed. This will mirror back as supply chain realities. As I mentioned when the river lowers, the turbulence is seen and modified to flow efficiencies to supply. Sticky wages was operation 936 and packaged as Nafta was for the true believers who missed that message.
The other groups must endure the missing value stream.

As you noted they did not listen.

We sold book three as it was a broker dealer who had a bright idea. I handled that account since they told us we were wrong and that is not how things are done. He was under thirty and very brilliant. That conversation lasted as long as it will be under advisement as conveyed and clicked the next day at 10:00 am as the positions were closed.

As noted the capex redirected will allow years to weather the brilliance of the current deceptions.
https://www.zerohedge.com/s3/files/inli ... k=_D3FnRxs


https://en.wikipedia.org/wiki/Babylon_F ... pte074.JPG
This was the symbolic gate from Babylon in Egypt to Mecca.
Few understand what it was for and what it ever represented.

In the time of the flood and eclipse with to root social divides we hold the line in the hour seen.
peleg------- reu -------- serug-------- nahor-------- terah
https://www.zerohedge.com/s3/files/inli ... k=_D3FnRxs

Coded from the book to events seen long before in the order of names.

27.5% Stocks 5.4% Bonds 67.1%Short-term reserves