The Kellogg Company announced today that it was breaking itself up into three companies: a cereal business, a plant-based food business, and a snack business.
It’s hard to think of a starker admission of corporate failure. The company’s shares basically sat out the great bull market that ended recently. Shares peaked in April of 2016 just short of $82 and never came close again. Shares mostly traded below $70 over the next six years, sometimes much lower. At their trough in 2019, you could pick them up for less than $54 apiece.
The company now says that its basic structure is unworkable. The growing snack business is, somehow, being weighed down by the stable, mature, and boring cereal business. There’s also the plant-based food business that does not seem to fit into either snacks or cereals. Certainly, the structure has been unable to produce returns for shareholders. Now management hopes that the parts might be worth more than the sum. Naturally, the chief executive is going with the growing snack business rather than staying with the cereal business that management helped destroy.
Kellogg did real damage to its brands—cereals such as Special K, Kellogg’s Raisin Bran, Frosted Flakes, Froot Loops, Rice Krispies, and Frosted Mini Wheats—when it decided to take sides in American politics by boycotting Breitbart. The company had long been suspected of basically being controlled by the the W.K. Kellogg Foundation, the far-left social justice operation that is its largest shareholder. Declaring that Breitbart—and by extension the entirety of center-right politics in American—did not conform to its values sealed this impression. Suddenly, Snap, Crackle, and Pop and Tony the Tiger were the self-declared opponents of ordinary Americans who preferred, say, Donald Trump to Hillary Clinton.
“Every time an American family picks up a box of Kellogg’s cereal at the grocery store, it is contributing to the wealthy radical leftwing foundation that agitates for open borders, supports George Soros’s Open Society Institute, and pushes a host of leftwing causes,” we wrote back in 2017.
Now that company is on its deathbed, its business model declared by its managers as untenable. Perhaps the emergent smaller descendants will be a bit less eager to act as aggressors in the culture wars.
Americans Are Not Buying the Putin Price Hikes
As recently as Monday, the White House was tweeting about “Putin’s prices hikes,” claiming they were the single biggest contributor to inflation. That is nonsense, of course. At most, the invasion of Ukraine likely contributed to higher oil, natural gas, and gasoline prices. The Bureau of Labor Statistics, however, tells us that inflation is up 6.6 on an annual basis excluding energy. What’s more, inflation was high and rising a year ago, long before Putin sent tanks into Ukraine.
To take a more concrete example, the price of ice cream is up 9.6 percent year over year. Whatever evils Putin has undertaken in Ukraine, surely they do not include cornering the market on American ice cream. Did Vlad drink all the coffee? Prices are up 15.6 percent. Is he secretly running America’s pet groomers? Pet services prices are up 7.4 percent.
A new poll from Rasmussen Reports shows that this attempt to blame inflation and gas prices on Putin has completely failed. Just 11 percent of Americans say Putin is responsible for high gas prices. Fifty-two percent blame Biden’s energy policies.
Home Prices Still Soaring While Sales Slump
It’s also not plausible that Putin is somehow behind the incredible rise in home prices. The median price of an existing home sold in the U.S. rose above $400,000 for the first time ever in May, a 14.8 percent jump from a year ago. Although rising mortgage rates have slowed the volume of sales, low inventory has meant that home prices keep climbing.
The National Association of Realtors’ barometer of home affordability—calculated by combining mortgage rates, home prices, and household income—indicates that in April homes were at their least affordable level since July 2007. Unfortunately, April is the most recent month available for the NAR gauge, but it’s a safe bet that things are even worse now due to higher mortgage rates and the jump in home prices.
Home sales are going to continue to fall. If the coming recession proves not to be as shallow as many economists now predict, that would likely mean home prices will retreat as well, at least in some of the more expensive markets.
Jason Furman Versus the Gas Tax Holiday
Jason Furman, an economist who served under Barack Obama and now teaches economics at Harvard, tore apart President Biden’s proposed gas tax holiday on Twitter Tuesday.
The idea is to lift the 18.4 cent federal tax on gas sales for a few months in hopes that it would provide some respite from higher prices. As Furman points out, given the severe supply and demand imbalances, most of the benefit from that tax cut will likely wind up in the pockets of the oil industry rather than consumers.
“If supply is not very responsive to price (the situation now) then most of the benefit of the tax cut will go to suppliers. The intuition is that if it was passed onto consumers they would want to consume more than could be produced—driving prices back up,” Furman said. “And yes, demand really does respond to prices—which means that consumers are in less of a position to benefit from a gas tax holiday.”
The Biden administration’s overwhelming instinct when confronted with an economic challenge is to spend more money. That’s one of the things that got us into this trouble in the first place.