Newspaper article THE JOURNAL RECORD

The Flake Factor

Newspaper article THE JOURNAL RECORD

The Flake Factor

Article excerpt

In addition to watching the Federal Reserve Board, oil geopolitics and presidential election campaign, analysts tracking the progress of the stock market have been keeping an eye on the price of Corn Flakes.

Depending on whom you listen to, recent changes in the price tags on cereal boxes could betoken a healthier consumer economy _ or a drift in sentiment among investors toward a troublesome degree of complacency.

The starting point for all this debate came in late May, when Kellogg Co. announced price increases averaging 3.5 percent on its U.S. cereal brands.

Shares of Kellogg, and some of its competitors in the business of processing and marketing food, responded with an immediate show of strength.

David Goldman, who follows the food industry for Oppenheimer Co., issued reports describing the price increase as "good news for food stocks.

"Brighter fundamentals and new investment cycle signal major turn in group performance," one of his headlines proclaimed.

At the same time, others said it looked as though traders were grasping for excuses to keep the market jumping.

"Investors showed their true elan when Kellogg's raised the price of Corn Flakes," said Michael Sherman at Shearson Lehman Brothers. "That momentous news set off a furious rally in food stocks.

"Get the picture? Money is talking and investors are becoming immune to worry.

"So, while the markets remain buoyant and fearless, it is well to remind ourselves that the present economic and interestte environment is unlikely to persist for long. The political and policy environment could undergo massive changes in the next six months."

For his part, Goldman asserted that the Kellogg move "is likely to signal a turning point in the fundamental outlook for the packaged food stocks," a formerly prosperous group that had fallen into neglect this year as investors turned their attention to cyclical "smokestack" manufacturing companies. …

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