Boockvar on Warsh, Inflation, Ketchup
The following is from Peter Boockvar:
If Kevin Warsh is still watching markets…/Buy ketchup, sell semis?/Earnings intel
After working for Stan Druckenmiller for so many years, I assume Kevin Warsh is still watching the markets closely and what I’m sure he sees is the sharp drop in inflation expectations in the TIPS market (see chart below) with 2s, 5s and 10s all nearing 2%. I don’t think he’s hiking rates today in light of that. As of this writing, the fed funds futures are priced at a 36% chance of a rate increase today.
That said, I’d argue that with PPI running 200 bps over CPI, it’s wholesale/business cost pressures that is the predominant pain point and PPI is not reflected in the TIPS market.
Going through the voters and based on recent speeches, I assume Lorie Logan and Beth Hammack will dissent and argue for a rate hike. Maybe Neel Kashkari too. Waller based his call for a rate hike on hotter than expected June CPI and we didn’t get it. Powell will just do whatever Warsh wants to stay out of that fray and I assume the same with the other Governors.
Finally, the Fed’s balance sheet has done nothing but increase in size all year and now at $6.7 trillion is the biggest since March 2025 and up about $200 billion from the December 2025 lows. Enough already with the expansion is something Kevin Warsh might say today and that could be his form of tightening.
Inflation Breakevens, 2s in white, 5s in blue, 10s in orange
Fed’s Balance Sheet
A key determinant for consumer price inflation we know is housing and Apartment List released today its National Rent Report on NEW leases for July. Prices rose .2% m/o/m but still down 1.1% y/o/y. They said “y/o/y rent growth has been inching up and the vacancy rate is inching down, signaling a modest tightening of rental market conditions…as construction slows and the recent influx of new units gets absorbed.”
Still, the rental growth softness remains in the Sun Belt states where most of the new construction has come while “many markets in the Northeast, Midwest and parts of the West Coast continue to see prices trend up.” San Francisco is the best market with rents up 9.4% y/o/y while San Antonio is the weakest, down 5.2% y/o/y.
I’ll argue again, that in the back half of 2026 and more so in 2027, new rental prices will resume an upward trend. This will join renewal rates that are running up between 3-5% on average. This, especially if mortgage rates remain high and affordability challenges for younger households to buy a home remain.
It was another crazy, stomach turning plunge in South Korean stocks led by the usual, SK Hynix and Samsung with the former reporting earnings that were great but missed very high expectations. After falling as much as 13%, the Kospi ended lower by 6% and it’s down 17% over the past 5 trading days and it’s year to date gains has shrunk to ‘just’ 34% from over 100% last month.
Sell semi’s, buy ketchup is what the market has rotated into. I’ve expressed our bullish and long positioning in consumer staples stocks many times here and it seems that while selling ketchup, cream cheese and Kleenex tissue is not nearly as exciting as high bandwidth memory, they are a beneficiary of a shift in investor flows and what I believe is a bottoming in fundamentals. Kraft Heinz in particular remains a favorite of mine and where still just one analyst of 21 has it as a buy.
Coca Cola, another one we own and whose stock rallied by 5% after good numbers and benefited from this rotation, said this of note yesterday:
“The quarter benefited from several factors, including favorable weather in certain markets, strong global activation around the FIFA World Cup and cycling an easier prior year comparison.”
A macro view, “Across much of the world, we see an uneven consumer environment. The economy is strong in many places, yet many consumers face inflationary pressures, geopolitical uncertainty, and economic challenges. They are evaluating how they shop, what they value, and what they want to put in their basket.”
“In markets like the US and Europe, the consumer backdrop is stable in aggregate, but many remain under pressure. In China, sentiment remains cautious and spending continues to be selective. Across Latin America, the consumer sentiment is mixed, with improvements in Brazil and Central America while consumers in other key markets remain under pressure.”
From Hilton Worldwide, down 2.5% yesterday:
“The continued improvement in travel demand across chain scales and segments supported both our top line and bottom line results.”
“business transient RevPAR was up 5.7%, a three point step up globally and a four point step up in the US vs the first quarter, driven by midweek demand from small to medium sized businesses. Leisure transient RevPAR was up 1.6%, supported by World Cup demand, exceeding expectations, but offset by unfavorable holiday shifts and pressure from the conflict in the Middle East. Group RevPAR was up 3.7% driven by growth in company meeting demand and favorable event calendar shifts.”
“As we look to the second half of the year, we expect underlying RevPAR growth to remain strong across chain scales and segments. We expect US RevPAR to continue to benefit from macro tailwinds, including supportive tax and regulatory policy, increased private sector investment in the AI complex, and ongoing public infrastructure spending, which should benefit the middle and lower income consumer and drive broader demand growth across our system, and will be coupled with historically low levels of supply growth at less than one half of 1%. We expect the business transient segment to lead as its recovery continues to strengthen into the third quarter.”
From Kering, up 3.2% yesterday:
“Across the group, we are seeing early signs of progress in brand, desirability, commercial momentum and operating performance.”
“The quarter also showed sequential acceleration, including at Gucci.”
From UPS, down 6.6% yesterday:
“Looking at SMBs (small, medium businesses), demand in the US in the second quarter was broad based across nearly all industry sectors, delivering SMB average daily volume growth of 4.3%.” Their healthcare logistics business in particular saw nice growth.
“looking at our industrial and automotive customers, they continue to operate in a complex environment shaped by shifting trade patterns, evolving regulations, and ongoing supply chain disruption.”
“While fuel price volatility in the second quarter drove higher fuel revenue and corresponding fuel costs, our fuel surcharge mechanisms functioned as designed, covering the increase in fuel expense.”
From Sherwin Williams and who had a good day with an 8% rise in its stock price:
They “delivered strong top and bottom line growth in the quarter amid ongoing global uncertainty and without any meaningful improvement in demand.”
“Customer feedback and the leading indicators we track continue to show limited signs of meaningful improvement in most end markets.”
“Targeted pricing actions during the quarter enabled us to offset raw material inflation…We expect inflation in our raw material basket to be up in the high single digit range in the second half, moving our full year outlook to the mid single digit range.”
Their Paint Stores Group, volume rose low single digit and price/mix was up at the low end of mid single digits.
On their Protective & Marine business which grew sales by mid teens percentage, they said “Data centers, semiconductor infrastructure, and manufacturing on-shoring are among several drivers of this growth.”
“New residential remained very challenging as single family starts and completions have been negative for five of the last six months.”
From Visa which is down about 1% pre market:
I’ll start by saying credit card companies benefit from both consumer spending, inflation and the continued cashless payment choices as people use less cash.
“process transactions grew 10% y/o/y to $72 billion, reflecting strong and resilient consumer spending.”
“US payment volume growth was the result of several factors, including higher tax refunds, the cost of fuel, retail, including the timing of promotional shopping events (I’ll add, Prime Day), strong Visa Direct growth and FIFA related spend.”
“Across our volume, both discretionary and non-discretionary spend remained strong. We do not see signs of the lower spend consumer weakening in our volumes.”
“Third quarter total international payments volume was up 10% y/o/y in constant dollars, generally consistent with the growth we’ve seen over the past several quarters.”
From Cheesecake Factory and whose stock is up pre market and has been on a tear this year:
Comps rose 5.8% with positive traffic of 2.7% y/o/y and pricing up about 3%. “One of the key drivers of this momentum has been the positive response to our recent menu additions, demonstrating the strength of our culinary innovation.”
By the way, “Later this week, we will celebrate National Cheesecake Day with the debut of our Brownie Crunch Choc-a-Lot Cheesecake.” I’m sure it’s yum.
Flower Child continues to do really well and saw comps up 13%.
From Ford:
“Our guidance continues to assume a US SAAR of 16 million to 16.5 million units, commodity headwinds of just above $2 billion” among other things. “Our guidance does not include potential impacts of a significant escalation in the Middle East or a material slowdown in the US economy, which could have a substantial impact on industry demand.”
“Ford Credit delivered another solid quarter…These results reflect our strong financing margin, our high quality portfolio and our disciplined approach to capital and risk management.”
From Seagate, jumping pre market after the recent selloff:
“As our results show, demand for mass capacity storage is strong and growing. We delivered fiscal year revenue growth of 34%, led by cloud customers’ demand for data storage solutions amplified by the adoption of AI enhanced applications.”
“Given our momentum and the improved visibility we have into demand, we expect fiscal 2027 revenue growth to outpace our performance in fiscal 2026.”
Overseas, Australia’s trimmed mean CPI in June rose .3% m/o/m and 3.6%, both about as expected and Aussie yields fell with it not surprising to the upside.
Positions: None.
