In Economics 101 we all learned that people vote with their dollars. If they like something they buy it and if they don't, they don't. In Politics 101 they teach you that people vote with votes and if they like you, you get elected and then re-elected. Politicians therefore are always twisting themselves this way and that to garner votes.
In business efficiency matters; trying to keep costs low and revenues high forces management to find the best way to manufacture and distribute their product. It became obvious, once again, that this ethos does not pertain to Washington as I read that the "Public Option" on the health care bill being discussed ad nauseam would effect only about 6MM people. While all these negotiations are going on there are roughly 15MM people out of work and even more if you consider the "under-employed".
If you were going to target a group to garner votes from it would seem that the unemployed would be the better group to go after as getting 15MM people jobs would probably get you more votes than getting 6MM people a check up but that's probably why I'm not in Washington.
One thing that they do know about in D.C. is pork as there have been a number of articles in the press regarding all of the "earmarks" included in the $787 Stimulus package.
The other kind of pork, the one with four legs and a squiggly tail, saw its fortunes change this past week as China pledged to lift its ban on U.S. pork imports. Tom Vilsack, Agriculture Secretary, said he expects the Middle Kingdom to resume imports "very soon" after meeting with his Chinese counterpart at the U.S.-China Joint Commission on Commerce and Trade.
News of that thaw in trade relations helped push frozen Pork Belly (a.k.a. Bacon) futures up 2% on Friday to 90.8 cents per pound. Lean Hog futures also rose about 2% on the news.Lest the significance of this escape you, China imported $560MM worth of the "other white meat" in 2008 and ranked as the second largest purchaser of our pigs. Imports in 2009 are down about 70% from that level across all of Asia and will most likely result in this year being the first of the last 17 that pork exports did not increase.
Smithfield Foods (SFD) is the largest U.S. hog and pork producer upsetting as that might be to the boys and girls in D.C. and Tyson Foods (TSN) is the other major player in the pig space.
SFD's CDS/equity combo hit its extremes for the year in March and have spent most of the time since moving lower (CDS) and higher (equity) albeit in pretty sloppy fashion. Highs just above the $14.00 level have been hit a few times since the end of June with the resulting sell-off making a higher low each time. There was a spike in the CDS in early September but it did not result in a major move lower in the stock. SFD closed at $13.34 on Friday with a CDS level of 771bps.
TSN has had a much tougher time of it in 2009 rising fairly sharply from the turn of the year until May ($8.76 to $13.88) and then back down to $10.71 by early August. Since then it's been sideways to slightly higher but it's having trouble breaking back through the $13.00 level. CDS wise, levels started the year at 446bps got as low as 160bps on 8/10 but have since risen to 242bps as of Friday.
It is unclear in the case of both SFD and TSN if improving exports will prove stronger than the economic uncertainty that resurfaced late last week.
In keeping with the Monday tradition of watching new highs and lows on the NYSE those numbers were 218 and 28 respectively last week. A significant change from the 802 and 6 numbers posted during the second week of October.
Enjoy the week.
