HOW STARBUCKS TELLS US THAT THE BOND MARKET IS A LIAR
To be functional in the capital markets you must develop an internal lie detector that is constantly seeking out those asset classes that are truth tellers and those who are devious liars. The most interesting and challenging aspect of this exercise is that on a month to month basis those asset classes we recognize as being angelic truth tellers suddenly become devious liars and vice versa.
The bond market is regarded by many as the ultimate truth teller. People like to believe that bond traders and investors are greatly sophisticated. The Bill Gross brainy types who relish and dissect economic statistics, formulating a recipe for success that makes equity investors seem like Forest Gump.
I am of the opinion that the age of information equality has taken away the edge that bond investors used to enjoy. They are now as susceptible to being outright wrong as any other class of investors.
It is fair to assume that during any recessionary period (coin flip chance currently according to most) the first thing to go will be discretionary items that when thought about on a deeper level seem absurdly overpriced. A $5.00 soy vanilla latte is one of those items that is threatened by sudden attention to the daily budget.
It is fair to assume then that one of the first companies to fall under threat of a recessionary period, driven by consumers opting for a $2 cup of coffee from McDonalds or a 50 cent cup of coffee from home, would be Starbucks. Instead, however, Starbucks is barely below its highs.
All the meanwhile, bond yields have plunged to levels that tell us $5.00 lattes are out and 7-11 coffee that you pour yourself is in.
Bonds are lying
click chart to enlarge
SBUX vs. TYX
