Starbucks isn't just the world's largest coffee chain,
it's also a bellwether stock.
It tells us a lot about what's happening
in the US and global economy, and what might be coming ahead
in the future.
So what is Starbucks telling us?
Well, we've received recently some disturbing
and somewhat surprising news from this company.
They're telling us that they're not
going to be able to continue growing at a fast rate
into 2020.
One of the biggest factors in their success
in the last couple of years has been the Trump tax cuts.
Those are running out.
And so the company is struggling to achieve the same kind of 10
per cent year on year growth they
had seen before in earnings per share.
What are they going to do now?
Well, one of the things that Starbucks is doing,
which is very indicative of a larger
trend in corporate America, is share buybacks.
They are pulling forward a large number of share buybacks
that they were expecting to do in 2020, in order to continue
buoying those results.
And this really speaks to the fact
that corporate America has been doing
a shell game in the last two years
of issuing debt - cheap debt - debt load at Starbucks
has increased threefold in the last couple of years,
and then using that debt to buy back their own shares in order
to buoy the price.
Now, this always works because they're artificially
reducing the number of shares on the market,
but a lot of people, like me, feel
that it doesn't really represent a buy into a growth story.
Share buybacks are not done best at the top of a market,
but really at the bottom of a market.
Which really says to me that this is not
a bet on future growth of a stock,
but rather an attempt to manufacture
a story for the street.
Right now we have stocks as expensive
as they've been in the US for 150 years
and yet companies are still continuing
this game of issuing debt, buying back shares and trying
to keep stocks up.
Now, Starbucks tells us that they think that the US
consumer is still buoyant.
That's important because many people, including the New York
Fed chair, Rob Kaplan at the Dallas Fed,
believe that the US consumer is the one thing standing
between the US and recession.
The question is how long can that buoyancy continue?
When is the US consumer going to really feel
that perhaps not all is well in corporate America?
Well, it could be that one bad jobs report,
one bit of bad economic news, could topple that confidence.
And this puts in mind of something
that founder Howard Schultz told me a few years back.
I interviewed him in 2015 when the company was actually
announcing very good results.
But he stood up in front of a number of Wall Street analysts
and said that the US consumer is fragile.
That, since the great financial crisis,
consumers have become skittish.
The first sign of bad news they will button up their wallets.
All we can do is hope for the sake
of the US economy and the global economy
that Starbucks's consumers and American consumers
have had their double shot.