 | | The Daily Reckoning | Monday, January 24, 2011 |
- Ears of corn unite! The world's food wages war against consumers,
- One sector set to benefit as inflation finds its way to your grocery store,
- Plus, Bill Bonner on why even modest budget cuts don't stand a chance...
-------------------------------------------------------
Advertisement
CNBC Says It Could Be Energy's Silver Bullet
No one thought it would happen. But one tiny solar company just crushed every obstacle in the industry's way.
It's 300% more efficient than rooftop panels, can be applied to any glass surface, generates electricity at night, and could hand you 595% over the coming months!
Click here for the full story.
|  | | | | When Food Prices Attack! | | How central bankers will save us from rising food prices | | |  | | Joel Bowman | Manning the trenches in Buenos Aires, Argentina...
En garde, Fellow Reckoner! We're under attack!
Jean-Claude Trichet, head of the European Central Bank, has sounded the alarm.
"All central banks, in periods like this where you have inflationary threats that are coming from commodities, have to...be very careful that there are no second-round effects" on domestic prices, Mr. Trichet told The Wall Street Journal from his office overlooking Frankfurt's financial district.
Can you believe it, Dear Comrade? If we are reading Mr. Trichet's comments correctly, it would seem that the world's food and energy communities are consciously rallying against us. Long thought to be soulless, mindless vegetables and minerals, commodities have apparently taken it upon themselves to "become" more expensive, to raise their own prices. We can almost hear the battle cries coming from the fields: Ears of corn unite!
Farmers are warned to sleep with one eye open lest an overzealous head of lettuce break ranks and attack under cover of darkness.
Mr. Trichet is busy marshalling the euro zone's 17 member countries ahead of this weekend's World Economic Forum in Davos, Switzerland. He's encouraging them to strengthen "surveillance" of each other's fiscal policies.
The fearless Frenchman noted that it is budget discipline that most benefits growth and job creation by "improving confidence of households, enterprises, investors and savers."
Amazing! What would we do without the world's central bankers, our frontline defense against self-inflating food prices? How would we know to save and invest if it were not for the battlefield cries of these intrepid, fiat fiddlers?
Waste...malinvestment...market distortions...worldwide food riots... There we go but for the grace of all-knowing central planners everywhere.
And yet, despite the best efforts of our monetarist saviors, food prices have been stubbornly rising across the planet. The Moscow News has the story:
Food prices shot up in the second half of the year following the summer's global drought, and a similar catastrophe in 2011 could send the world towards disaster.
The average basket of food products rose 10.6 per cent, exceeding inflation, which reached 8.8 per cent.
But global food inflation reached 25 per cent year-on-year at the end of 2010 - up from its low of 7.5 per cent in June before the drought hit. What's going on here? How is it that an army of corn - up 94% since June, as Chris Mayer points out below - has outsmarted our finest academics?
Here's a thought: Perhaps, as Milton Friedman so eloquently explained, inflation really is "always and everywhere a monetary phenomenon."
True, in accepting this fringy position we'd also have to believe, as Friedman posited, that there's "no such thing as a free lunch." Crazy? Sure. But let's allow our imagination to wander for just a moment...
Let's say that, by inking trillions of dollars in new bills, central banks are actually causing inflation rather than raging against it.
What then?
Yes, yes... We know the "Bernankes" of the world are acting with our best interests at heart. We understand they know just which lever to pull and which knob to turn at precisely the right moment. But what if, somehow, they got it wrong? Would we see inflation leaking into the markets, pushing up prices at the pump and the grocery store?
What we need here is a recon mission. So tell us, Fellow Reckoner, what's going on in your neighborhood? Are you noticing a price creep in your monthly bills? Could it be that inflation is already here, that it has infiltrated our defenses and lurks in our very midst?
Send your own inflation observations to us here: joel@dailyreckoning.com
In the meantime, Chris Mayer fires a warning column across the bow in today's guest essay, below. Please enjoy...
| | | | | The (common sense) Truth about Inflation... |
If you think inflation is good for the economy, why isn't Zimbabwe the wealthiest nation on earth?
In Chris Mayer's brand new video presentation he destroys the popular myth that inflation stimulates the economy and create jobs. He also reveals the sickening truth behind Washington's endorsement of runaway money printing.
Please, don't do anything else until you've learned the TRUTH...
Click here to watch your FREE presentation now.
| | |
| | The Daily Reckoning Presents | | Food Crisis II | | |  | | Chris Mayer | A story I've been warning about for years is making sensational headlines right now.
It's a story most people don't realize could make a huge impact on all of our portfolios in a number of ways.
"US Crop Stock Forecasts Deepen Fears of Food Crisis" read a recent Financial Times headline. The US government cut its estimate for key crops. This came only a week after the UN warned the world faces "food price shock." Corn and soybean prices jumped and now sit at 30-month highs. Inventories are very tight. Corn is up 94% since June!
And the world worries about a repeat of 2008, when food riots erupted in poor countries around the world.
This has been in the works for a long time. It was there for all to see. The ratio of arable land to people has been falling for decades. Gains in crop yields have slowed. Population has expanded and income levels have grown. Diets have shifted. More people are eating more meat, which is much more grain-intensive to produce.
And the love affair with biofuels puts food production in direct competition with energy. Plus, there are water scarcity issues affecting food supply. My readers have made tremendous gains from this trend by owning shares of agricultural fertilizer producers Potash (POT) and Mosaic (MOS).
I should also make the point that this fits in with another topic I'm concerned about: inflation. Now, the man on the street uses the term "inflation" to mean when prices for everything seem to go up. Or put another way, inflation is when the dollars in his pocket buy less. In truth, this is the effect of inflation. The root cause is simply money printing. When you print more money, that money has less value than if you didn't print any new money at all.
So what we are seeing with rising commodity prices is not only the supply and demand story I led off with. It's also the effect of paper money losing its purchasing power in the real world of things. This, too, was easy enough to see. Finally, all that money printing - the "quantitative easing" baloney you've heard about - is coming home to roost.
Still, it's disconcerting to see it all playing out. For the sake of our world, I'd rather have gotten this one wrong. But we have to deal with the market we are in. So what might "Food Crisis II" mean from an investment point of view?
Food prices will have to rise: There is no way around this. We are all going to pay more for food. Wells Fargo predicts US retail food prices will rise about 4% this year. Some things will go up much more. Pork and beef could rise more than 10%.
This won't necessarily mean that meat producer stocks are good buys, because they may not get to raise prices to fully offset the rise in feed costs. Anecdotally, for instance, The Wall Street Journal cited a Minnesota 300-cow operation that reported feed costs had doubled. Plus, I've listened in to the conference calls of a number of food producers - Tyson, Hormel, and Sanderson Farms. They all talk about getting squeezed by rising feed costs.
I do think these companies will be good buys sometime this year, because people will adapt and farmers will respond. Producers won't produce meat at a loss for long. And farmers will bring every resource they have to bear. It's been slow getting the crops in the ground so far in many places. But ultimately, there is a lot of potential supply from Brazil and the US.
Still, weather is the big wild card here. If we have a drought in the US or in Brazil, this could really get ugly.
Emerging markets are vulnerable: This follows from the above. It doesn't really faze the typical American to have to pay 4% more at the grocery store. Food is still such a small part of the typical American's budget. I think Michael Pollan in The Omnivore's Dilemma points out that the US spends 9% of its income on food, which is among the lowest percentage of any people anywhere at any time in history.
The same is not true in India or China or many emerging markets. In China, people spend 50% of every incremental dollar on food. And in India, it's more like 70%. So the rising price of food is felt more keenly in these markets.
The price of food is rising faster in emerging markets, too. In India, food prices are up 18% and at their highest level in a year. China has the same problem. Prices rose 5% in November alone. All around the world, emerging markets have a big problem with rising food prices. Indonesia's president is trying to get people to grow their own chili peppers. And the South Korean government recently released emergency stores of cabbage, pork, mackerel, radish, and other staples. I could go on and on.
The point is that the emerging markets boom is not going to go far when it faces a food crisis. Already, the markets are starting to reflect this. India's Sensex was down three straight days and off 6% to start the year. Other markets also started badly. And if China and India and the rest slow down, it's going to have a huge impact on all those stocks and commodities most sensitive to emerging market growth.
I'm keeping a close eye on these developments. There will be opportunities in this crisis, as with all others. For instance, though rising grain prices are not good for meat producers or emerging markets right now, it's a boon for fertilizer stocks. As the old golf saying goes, "Every putt makes somebody happy."
Regards,
Chris Mayer
for The Daily Reckoning
Joel's Note: Just last week Chris released a special research presentation on what he sees as one of the greatest threats to your wealth and, more importantly, what you can do to protect yourself against it. If you haven't yet given it a gander, here's a link with all the details. (Simply turn your speakers on and click here.)
| | | | | | | | | Bill Bonner | | Budget Cuts in the Irrational Financial System | | |  | | Bill Bonner | Reckoning from Baltimore, Maryland...
Gold down another $5 on Friday. Are you tempted to get out of gold now...and get back in, after the dip bottoms out?
Forget it.
The advantage of investing family money rather than personal money is that you have time on your side. You can sit tight and let the big trends make you big money... If you can get them right.
But don't try to trade in and out. Because you can't know exactly when the trend will back off...and when it will explode to the upside.
So if you want to take advantage of a big trend, you have to just get in and stay in...and take a very long-term approach. In the case of the gold bull market, for example, it may be years before the final blow- off bonanza comes.
If you try to time the trend on a year-by-year basis, you're almost sure to lose money...and miss the big payday. Because you'll sell out...then, the price will rise. You'll vow to get back in on the next dip. But a real bull market never gives you the dip you're looking for. Prices go down...you hesitate, hoping to get in at the bottom of the move...and then, they rise again. Soon, the price is much higher than the price at which you sold out. So, you want to kick yourself. "I can't buy back in at such a high price," you say. You wait...and the bull market goes ahead without you.
That's why speculators rarely make any real money in a major bull market. The fellow who makes the real money is the guy who buys in early...and stays in to the end. Imagine trying to trade in and out of stocks during the big bull market of '82-'00, for example. Most likely, you would have sold out somewhere along the way...and been left behind...while those who just stayed in multiplied their money 11 times.
So, don't be tempted to sell out. Buy. Hold. Be happy.
And be prepared to wait...years if necessary...for the crack-up of the monetary system and gold at $3,000 an ounce - or more.
It seems like a sure thing. But, wait...what's this?
Here's the latest from US News World Report:
Moving aggressively to make good on election promises to slash the federal budget, the House GOP today unveiled an eye-popping plan to eliminate $2.5 trillion in spending over the next 10 years. Gone would be Amtrak subsidies, fat checks to the Legal Services Corporation and National Endowment for the Arts, and some $900 million to run President Obama's healthcare reform program.
What's more, the "Spending Reduction Act of 2011" proposed by members of the conservative Republican Study Committee, chaired by Ohio Rep. Jim Jordan, would reduce current spending for non-defense, non-homeland security and non-veterans programs to 2008 levels, eliminate federal control of Fannie Mae and Freddie Mac, cut the federal workforce by 15 percent through attrition, and cut some $80 billion by blocking implementation of Obamacare. How do you like those Republicans! They're trying to spoil our fun. Finally, they're going to "pull a Volcker." Tough guys, huh? They're tough on spending. See... Francis Fukayama was wrong; they do have an appetite for fixing America's real problems after all. There goes the bull market in gold! The yellow metal will probably fall in price for the next 20 years...just as it did after Paul Volcker got control of inflation in 1979.
But wait... $2.5 trillion sounds like a lot of money. But it's over 10 years. That's only $250 billion a year. And the budget deficit this year is supposed to be over $1 trillion.
So, unless we're missing something...even these cuts are only a quarter of what they'd have to be in order to bring the budget back into balance.
Okay...you're thinking...what's a little deficit? But at $750,000 billion...that's still a deficit of 5% of GDP, even if the cuts were 100% effective. And if the economy grows at only 3% or 4% of GDP...as Ben Bernanke has forecast...it means debt as a percentage of GDP is still growing.
And more thoughts...
Even these modest cuts proposed by the Republicans don't have a chance. Every privileged group threatened by the cuts will mobilize. The wailing and gnashing of teeth will be reported from coast to coast. Compromises will be made. In the end, spending will probably go up - even for the programs that were supposed to be cut.
So, why bother to propose cuts that will be blasted as "drastic" and "draconian"...if they 1) won't be passed...and 2) aren't even a shadow of enough to get the job done anyway?
Why? Because that's how the system works. It awards special benefits to power groups, whether the nation has the money to pay for them or not. Then, if there is a problem...it pretends to fix it.
And we know what you're thinking... "Well, the system will just have to learn to do things differently." But that imagines that the "system" is rational, thinking and responsive. It is not. It is merely reactive...like a primitive molecule or a PTA meeting. It has DNA. It desires to procreate. It will fight to protect itself and stay alive. But it cannot become a different thing. Look, tigers may be on the verge of extinction. But you don't see them becoming house cats, do you?
That's just not the way it works. The system must fight to protect itself. Not something else. It can't become a different system. If it were to do so it would no longer be the system, would it? It will react to the bond market...to default...to revolution. It will not respond to the needs of fiscal integrity.
Got that? Hope so. That's the final piece of our new idea about how the world works.
The Providential State...our advanced social welfare governments...were set up in a different time. They evolved under very different circumstances. The climate has changed. Where once there was abundant land, water and energy...now there are 6 billion people bidding for the same limited resources. Where once there was a handful of Western nations (and Japan) with a disproportionate share of the world's wealth...now they are having to share the wealth with Brazilians, Chinese, Indians and others. Where once their populations got richer every year, now their wealth stagnates and falls. Where once there were more of them in every generation, now there are fewer workers to support the old people. Where once old people cooperated by dying soon after they stopped working, now they refuse to die at all.
And yet, the government cannot adjust to these new realities. The new realities are against its nature. It was designed to keep both the masses and the elites happy. The elites were paid off with big bribes. The masses got small ones. What will happen when the bribes stop?
That is what we will find out.
*** Donald Trump must be a moron. He calls the Chinese "the enemy" and criticizes them for "totally manipulating their currency." How do they do that? By linking the yuan to the dollar. And yet, what are the Americans doing? What is $1.7 trillion in new, crisp printing press money? Is it not an attempt to change the value of the dollar?
Word on the street is that Trump is planning to run for president. Great...he'll be perfect for the job.
*** As a system matures, it degenerates. Real things - like real money - are replaced by imitations. Instead of actually doing useful, productive things, people "go through the motions," merely pretending to do useful things.
This is true in education as in everything else. At first, people learn - either in school or on the job. Later, they get educated. The Huffington Post has more on the story:
A new study provides disturbing answers to questions about how much students actually learn in college - for many, not much - and has inflamed a debate about the value of an American higher education.
The research of more than 2,300 undergraduates found 45 percent of students show no significant improvement in the key measures of critical thinking, complex reasoning and writing by the end of their sophomore years.
One problem is that students just aren't asked to do much, according to findings in a new book, Academically Adrift: Limited Learning on College Campuses. Half of students did not take a single course requiring 20 pages of writing during their prior semester, and one- third did not take a single course requiring even 40 pages of reading per week.
That kind of light load sounded familiar to University of Missouri freshman Julia Rheinecker, who said her first semester of college largely duplicated the work she completed back home in southern Illinois.
"I'm not going to lie," she said. "Most of what I learned this year I already had in high school. It was almost easier my first semester (in college)."
So what to do? The report warns that federally mandated fixes similar to "No Child Left Behind" in K-12 education would be "counterproductive," in part because researchers are still learning how to measure learning. But it does make clear that accountability should be emphasized more at the institutional level, starting with college presidents. Regards,
Bill Bonner
for The Daily Reckoning
-------------------------------------------------------
Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor at joel@dailyreckoning.com
| | |  |  |  | Long Term Investments for Continued Family Wealth
We were explaining the difference between investing for yourself and investing for your family. If you're investing for yourself you usually have fixed objectives – often retirement financing. Since you know when you will need the money, you need to focus on investments that will pay off in the allowable time.
China is to Gold as the US is to Paper Currency
How to Get the US Back to Full Employment in 30 Days | China's US Assets Fall With the Dollar
I was chortling away as I thought to myself, "Okay, Chinese dude! We are positive! We are positive about the stability of your dollar assets! Hahaha! We are positive that the purchasing power of your US assets will fall along with the fall in the purchasing power of the dollar, you moron..."
The Surprising Price of Wheat
Why the Fed Creates So Much Money | Gold Stocks a Buy, Declares Dan Amoss
Gold begins a new week up a touch from where it ended last week. The spot price as we write is $1,348. Silver is off a few pennies, to $27.45. While the markets tread water, the Russians and Chinese are snapping up metal... Chinese silver imports quadrupled last year, according to figures from Mitsui.
Canadian Finance Minister Talks Up the Loonie
What Every American Needs To Understand About The Economy | |
| | The Daily Reckoning: Now in its 11th year, The Daily Reckoning is the flagship e-letter of Baltimore-based financial research firm and publishing group Agora Financial, a subsidiary of Agora Inc. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas. Published daily in six countries and three languages, each issue delivers a feature-length article by a senior member of our team and a guest essay from one of many leading thinkers and nationally acclaimed columnists. |  |
| | | | | Additional articles and commentary from The Daily Reckoning on: |  | Twitter |  | Facebook |  | DR iPhone APP | To end your Daily Reckoning e-mail subscription and associated external offers sent from Daily Reckoning, cancel your free subscription. If you are you having trouble receiving your Daily Reckoning subscription, you can ensure its arrival in your mailbox by whitelisting the Daily Reckoning.  © 2010-2011 Agora Financial, LLC. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This newsletter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the World Wide Web), in whole or in part, is strictly prohibited without the express written permission of Agora Financial, LLC. 808 Saint Paul Street, Baltimore MD 21202. Nothing in this e-mail should be considered personalized investment advice. A lthough our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice.We expressly forbid our writers from having a financial int erest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of a printed-only publication prior to following an initial recommendation.Any investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.
| | |  | 
The Daily Reckoning U.S. Edition
No comments:
Post a Comment