Textbook Falling Interest Behavior

by
Keith Weiner
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Costco

This is a textbook case. Well, it would be if there was a textbook that presented the dynamics of the rising and falling interest rate cycles.

Costco is spending over a quarter billion dollars, to make a capital investment in chicken processing. This is not the typical entrepreneurial investment, which seeks to increase margins by serving an unserved or underserved demand.

This is an investment made with conscious intention to drive prices down.

Costco is making a huge investment (I assume with borrowing dollars) to drive the price of rotisserie chicken down. Nearly every critic of the Fed cries about inflation, yet this article casually mentions that Costco has not raised the price on its hot dog and soda combo since the mid 1980’s. And now Costco is driving down the price of another popular food.

This does not mean the dollar is going up–the dollar is not 1 / chicken. It means the value of capital investment is going down. We don’t know the chicken market, but we assume there is no shortage of capacity. Costco is adding capacity for another 100,000,000 chickens a year. This will surely pressure the yield on all extant chicken processing plants.

Yields under pressure. Feeding investor capital to consumers. These are textbook symptoms of the falling interest rate trend.