Charts of the Month - February '23

Starbucks Profitability, Mediterranean Crossing, China Trade Deficit, Natural Gas, Retail Investor Flows, EPS Quality Deteriorating, Zombies, Negative Yielding Debt

Charts of the Month - February '23

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Starbucks: From Headlines to the P&L

Starbucks received a lot of attention last week for launching a new coffee drink with olive oil in it.

The announcement has some sticker shock for sure as it sounds a bit weird at first, but if you take a step back, it’s not that crazy. Bulletproof Coffee introduced us to oil in coffee and fourth wave coffee is full of single origin, light, and highly floral noted coffees, which could also pass as a description of a good olive oil. But hey, headline sellers need to sell headlines, right?

What we thought would be a more interesting and less wasteful way to spend your 10-minute read with us, is to dive a bit deeper into the Starbucks 10K to explore how 2022, with its onslaught of geopolitical and macro cross currents, manifested itself onto the P&L of a company that’s been subjected to just about every headwind the last three years had to offer.

Starbucks is a multinational corporation (HQ’d in the U.S., with corporate offices across EMEA, India, Australia, China, and the U.K., and 32,000 stores in 80 countries) selling a commodity-based product whose price is heavily influenced by geopolitical and macro events, weather, human rights and social forces, cross-currency translations, and a whole host of micro drivers that only a select few firms in the world are subject to. Combined, these forces create an interesting case study, especially for us here at Lykeion where our focus is on the convergence of business, finance, and geopolitics. Basically SBUX.

In their latest report, Starbucks categorically breaks down where they saw operating margin compression and expansion, which, on a net basis, saw a 250 basis points contraction (i.e., they were 2.5% less profitable in 2022 than in 2021).

starbucks operating margin

This is a visual representation of how headlines (inflation, wages, commodity cycles, etc.) materialize onto a P&L.

Someone get Schultz a double shot of EVOO...

Recorded Deaths in the Mediterranean

From our friends over at International Intrigue (definitely sign up if you haven’t already, it’s top-flight geopolitical commentary):

deaths in the mediterranean

Headline: At least 73 dead in the latest Mediterranean shipwreck.

Briefly: More than 73 people are believed to have died at sea during an attempt to cross the Mediterranean and reach Europe. Only seven managed to return to Libya, from where their small boat departed sometime earlier this week.

Some context: Libya is a common departure point for folks trying to reach Europe: it’s close, and local law enforcement is near-zero. Unfortunately, this latter point means human rights abuses are common, perpetrated by both traffickers and the Libyan authorities.

Zooming out a little: migration is one of the toughest challenges for governments today. On the one hand, the UN was founded on the principle that countries govern themselves. And for many countries, that means controlling their own borders.

On the other hand, there are now 90 million people forcibly displaced around the world, and the Refugee Convention protects the right to seek asylum.

Intrigue’s take: The geopolitical angle to all this is a doozy. Countries that find themselves along the migration path (like Turkey, Morocco and Belarus) have been accused of 'turning the migration tap' on/off  to maximize their leverage over places like the EU.

Others that seek to manage the issue through bilateral deals (like the UK-Rwanda arrangement) can find themselves under the blowtorch of global scrutiny. And meanwhile, governments seen as sitting on their hands put themselves at the mercy of (angry) voters. We wish we could find an optimistic angle here, but there ain't one.”

Trade Deficit

“When thinking about a macro-overlay onto a geopolitical framework, one is operating as fast twitch muscle and the other one is going for a marathon" - Roger

This is a reminder that the narratives of de-globalization, re-globalization, nearshoring, and all other iterations of the phrases used to describe the shifting geopolitical backdrop that held together the last 30+ years of global markets, are going to take a very long time to play out. As Roger put it, this is the marathon part. (And all you high strung natural gas traders are the quick twitch muscle.)

Even with Trump's trade war tariffs (which went into effect back in 2018 and are still largely intact under the new administration) and the rising tensions in the South China Sea over the sovereignty of Taiwan, the U.S. trade deficit with China is actually… increasing.

This isn’t to say that at some point the U.S. won’t actually deleverage itself from China, but, it’s important to remember that global trade, mission-critical supply chains, food, and energy security… these themes are incredibly complex and we (myself included) may sometimes get ahead of ourselves in expecting the things we read, no matter how credible the source, to materialize instantaneously in the data. Themes that are tectonic in size and speed mean any meaningful shifts may still be a generation away (at least).

Natty Gas

The WSJ did a nice job covering the decimation currently taking place in the U.S. natural gas market (you won’t hear me complimenting mainstream media sources often, so this is a big deal).

natural gas price natural gas rig count haynesville

Here are a few highlights from the piece (emphasis added throughout):

Retail Investor Flows

Just one point to make here: a reminder to index investors that believe they’re getting diversification with their index funds… think again.

retail investor inflows tech spdr S&P 500 invesco nasdaq 100 apple amazon google tesla microsoft

It’s somewhat comical to see where retail investors have been putting their money this year after last year’s tech beatdown.

It’s basically tech, and indexes heavily weighted with lots of…. tech.

Let’s get some imagination guys…

Earnings per Share Integrity is Lacking

An interesting trend picked up by Yuri over at Snippet Finance (another one to subscribe to if you haven’t already).

earnings per share gaap pro forma earnings per share

Companies report both GAAP (Generally Accepted Accounting Principles) and non-GAAP (pro forma) earnings as the two metrics can vary, sometimes greatly. While GAAP figures indicate how much money a company made during a reporting period, pro forma earnings tell you how much a company made from its usual, or ordinary business activities in that same period—but with stripped out extraordinary or one-time events, good or bad. Asset write-downs, called impairment charges, and significant one-off P&L losses, like fines, are standard.

2008, a period where just about every company reported a loss, looks like the first large divergence to take place - which makes sense seeing as balance sheets around the world got beat up by the GFC, and large write-offs followed.

But the trend (noticeably higher over time) is what’s interesting, if not a little shocking. What’s causing the rise? Any thoughts? Write to us at and give us your two cents.

Zombies Are Now Actually Dying

Since the beginning of the pandemic, the coverage of zombie companies (companies who can barely operate their business while servicing interest payments on their debt, but are unable to actually repay the debt), was widespread, including yours truly.

With zero interest rates and a frothy equity market, these firms were still humming along, but just barely.

But now, with a coordinated global tightening of rates and volatility back in the equity markets (but still subdued), it looks like the zombies are beginning to get laid to rest.

zombie companies bankruptcy

Negative Yielding Debt

Not too long ago, when inflation was still low and interest rates were pinned to zero, negative-yielding debt was a headline story. Most developed countries were actually trying to get inflation and therefore allowed yields on their bonds to float into negative territory.

No longer. Inflation is back and with it comes more aggressive monetary policy – higher rates for (likely) longer, which has zeroed out the number of negative-yielding bonds and averted the ‘crisis’.

zero yield bonds negative yield bonds negative yielding debt

A secondary effect, a much more positive one, is that cash is no longer trash, and investors are taking note. Balances in money market funds (de facto cash) have risen substantially alongside these rising rates, which means that investors (and non-investors with a savings account) can, for the first time in a long time, actually earn some yield on their cash, and not be forced far out on the risk curve.

With the fear of ridicule, I actually just purchased, for the first time ever, two 3-month duration CDs yielding 4% - and that’s certainly not trash.

It’s also a good counterbalance to my 95% energy-focused portfolio which is, shall we say, slightly more volatile…

Yes, I actually use these and think you should too...

That's it for February!

As a reminder, on March 6th at 2 PM EST we'll be hosting the Lykeion Research Ask Me Anything with Jacob & Roger on Twitter Spaces. So mark your calendars, follow our Twitter handle to participate, and if you haven't had a chance to read the last report, "Investing Through Japan’s Next Big Inflection Point", now's your chance to catch up.

As always, we'll see you out there...

Tim Purcell

And just like that, it's time to wave goodbye to the palms of Panama | Where the jungle meets the ocean...
Published in: Charts
Tim Purcell

Co-founder & Head of Growth. Covers Energy, Business, and Geopolitics. Ex-Goldman Sachs IMD, buy & sell side equity research, M&A at AT&T, and head of strategy for media startup.

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