THEME: INFLATION & STOCKS
Here is an educational tidbit:

Perhaps the shoppers were saving their pennies for Starbucks (SBUX), where same-store sales surged 13% last month with the aid of a price increase. The stock frothed 2% to a new record, even though the boss noted that such an "extraordinary" growth rate can't be sustained.

Perfect example of a winner in inflation. People have basically not cut down on their triple soy latte with foam drinks. SBUX is printing higher earnings just based on being able to pass the cost of inflation over to its customers. On a nominal basis, this makes SBUX stock more attractive. Of course, this is an illusion because although SBUX may look great in US dollar terms, in Euros its not looking so hot.

So a weaker dollar is linked to inflation, and at least in the case of a company that can pass on its costs, it is nominally good for the stock, but only when it is viewed from the eyes of a domestic shareholder.

The question becomes, just when does the general inflation lead to a substitution effect? How poor do people need to feel before they look at 7-11 coffee as an alternative to their expensive lattes?


I am not sure that I am the answer to this one, but I think I'll know when we get there.

P.S. Apparently, the Wal-Mart shoppers haven't been going to Starbucks.