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Goldman Acknowledges Higher US Food Prices, Says Not A Concern If They Stabilize Soon

Tyler Durden's picture





 

We were wondering how long the Goldman economic koolaid team would continue living in a pretend "priced to perfection" reality. The answer is just 2 under months. After ignoring the topic of surging food prices, head economist Andrew Tilton finally decides to discuss the issue (following 5 countries with violent riots demanding to learn much more about the issue). Not surprisingly the conclusion is one that will not make any dent on the firm's Goldilocks outlook for a QE-inspired, pretend economy. While Tilton attempts to preserve some credibility by noting that yes, it could get very bad, his conclusion is one of keeping to the party line, i.e., that everything will be ok and that much time has to pass before things get bad, even if they were to get bac. To wit: "the recent surge in food commodity prices poses upside risk to both our core and headline CPI forecasts, particularly the latter.  The rise in food costs should push up headline CPI inflation by roughly ½ point even without meaningful pass-through effects into the core index, reducing household real income growth accordingly.  While clearly undesirable from the standpoint of households, these results suggests that as long as commodity prices stabilize relatively soon, the burst of food inflation would not have a major impact on the broader economic outlook." And what happens if commodity prices do not stabilize "relatively soon", which they won't as long as Ben Bernanke continues to step in for the increasingly sparser foreign Treasury purchasing interest (also known as the Frost-Sack Top Secret "Dow 36,000 Project").

Full Andrew Tilton note:

Prices for food commodities have surged in recent months, with our Goldman Sachs Commodity Agriculture & Livestock index up 60% since its recent trough in mid-June 2010.

Higher food costs have yet to reach the retail level.  Our analysis suggests an average lag of seven months from commodity price changes to retail food price changes.  Typically, retail food prices move about one-tenth as much as commodity prices.  Of course, there is significant variation in both the time lag and the degree of pass-through in individual episodes.

If commodity prices held steady at current levels, we would expect to see consumer food inflation accelerate from roughly 1% over the past year to about 5% in mid-2011, contributing about ½ point to the headline Consumer Price Index.  Pass-through into core could also be a few tenths of a percentage point, although there is considerable variation around this outcome.  These results suggest that the burst of food inflation seen thus far poses modest upside risk to our current inflation forecasts, but not a major threat to the broader economic outlook.

Prices for food commodities have surged in recent months.  Cash prices of grains such as corn and wheat have nearly doubled over the past half-year.  Our Goldman Sachs Agriculture & Livestock index, a component of the overall GS Commodity Index, is up 60% since its recent trough in mid-June 2010.

Despite the sharp increases in farm prices, higher food costs have yet to reach the retail level.  The food component of the Consumer Price Index is up just 0.8% since mid-2010 and 1.5% year-over-year.  Commodity prices and consumer prices for food diverge for two main reasons:

1. Other costs dilute the effects of raw commodity price changes.  Commodity food costs are only a small portion of the final consumer prices of food.  Even raw vegetables at the grocery store incorporate some labor and transportation costs associated with getting the product from the farm to the store shelf.  Much of the food that consumers purchase has been processed considerably and packaged, adding further layers of cost.  And the food CPI includes food served at restaurants, which incorporates further costs of service.  All of these other costs generally move much less than commodity food prices, diluting the effect at the consumer level.  As a rough rule of thumb, we find retail food prices move a bit less than one-tenth as much as our GSCI Agriculture & Livestock index.

2. Time lags from farm to store.  It takes time for commodity price changes to be reflected at each stage of the food production chain.  On average, we find the highest correlation between commodity and retail food price changes at a seven-month lag.

Illustrative Food Price Pass-Through and Lag Times

 

To estimate the likely impact of the sharp rise in food commodity prices on the Consumer Price Index, we constructed a model linking the food CPI to 1) the GSCI Ag/Livestock index and lags, 2) lagged core CPI inflation (as a proxy for the underlying inflation trend), and 3) capacity pressures, specifically the capacity utilization rate in the food manufacturing sector and the unemployment rate. Using quarterly data from 1985 through 2010, the model suggests that if food commodity prices stayed at current levels, the 60% increase in food commodity prices to date would push food CPI inflation to around 5% (annualized) in Q2 and Q3 2011.  On a year-over-year basis, the food CPI would probably peak in the 4%-4½% range.  

What does this mean for the more commonly followed headline and core CPI measures?  The total effect on the CPI includes both direct and indirect effects.   Food has a relative importance weight of 13.7% in the overall CPI, so the sort of acceleration we envision would make a direct contribution of approximately ½ percentage point to headline CPI inflation in mid-to-late 2011.

Food inflation also could have indirect effects on the CPI by pushing up prices of specific items within the core index.  This could occur because companies in other sectors provide food to their employees or to customers as part of their business, and are able to pass the incremental food input cost on in their final prices.  Or it could conceivably occur if higher food price inflation nudged up inflation expectations, which then affected wages and/or prices more broadly.  In any event, we do find some evidence that food prices push up core inflation slightly (specifically, core goods and some core services, but not rents).  Food price inflation in the CPI along the lines of the scenario above might push up core inflation a few tenths of a percentage point over the subsequent year; though as with pass-through from commodity to CPI food inflation, results can vary significantly from one episode to the next.
 
In summary, the recent surge in food commodity prices poses upside risk to both our core and headline CPI forecasts, particularly the latter.  The rise in food costs should push up headline CPI inflation by roughly ½ point even without meaningful pass-through effects into the core index, reducing household real income growth accordingly.  While clearly undesirable from the standpoint of households, these results suggests that as long as commodity prices stabilize relatively soon, the burst of food inflation would not have a major impact on the broader economic outlook.

 


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Tue, 01/18/2011 - 22:46 | Link to Comment dick cheneys ghost
dick cheneys ghost's picture

thanks lloyd!!!

Wed, 01/19/2011 - 01:47 | Link to Comment Red Neck Repugnicant
Red Neck Repugnicant's picture

The commentary from Andrew Tilton is pure bullshit. 

It is nothing but propaganda, a preemptive defense for the vipers at the GSCI as their fates are currently being calculated by the CFTC and the new rules regarding speculative position limits.

Tue, 01/18/2011 - 22:47 | Link to Comment tmosley
tmosley's picture

Yes, we are driving directly towards a wall.  We'll be fine as long as the wall is gone before we hit it.  In order to aid the process, we are applying the nitrous.

Tue, 01/18/2011 - 22:49 | Link to Comment pedro barbosa
pedro barbosa's picture

we are driving towards wall st.

Wed, 01/19/2011 - 05:47 | Link to Comment Sudden Debt
Sudden Debt's picture

yes... BUT THE WALL ISN'T A REAL WALL!!

You'll see that when we hit it!

Nothing will happen!

 

trust me...

 

NOW STEP ON THE GAS!!!!!!!!

 

Tue, 01/18/2011 - 22:50 | Link to Comment lunaticfringe
lunaticfringe's picture

+100

Wed, 01/19/2011 - 00:14 | Link to Comment Mad Max
Mad Max's picture

This is where mechanical excellence, one thousand four hundred horsepower, pays off.

Tue, 01/18/2011 - 22:50 | Link to Comment Teapot_Dome
Teapot_Dome's picture

Tell JPM to short sugar not silver.

Tue, 01/18/2011 - 22:58 | Link to Comment Spalding_Smailes
Spalding_Smailes's picture

I'm glad we(I) live in the U.S.A ....

 

LONDON (SHARECAST) - Annual consumer price inflation (CPI), the government’s preferred measure, rose to 3.7% on an annualised basis in December as soaring commodity costs pushed up prices. 

The rise from a rate of 3.3% in November was bigger than had been expected and is the latest in a series of data demonstrating the influence of rising commodity prices and other upward pressures. 

The Office for National Statistics, which is responsible for compiling the data said that higher air fares, food, fuels were among the biggest upward pressures on inflation. Gas tariff hikes announced by the energy suppliers last year also made a large contribution. 

Last week, figures showed a bigger than expected rise in factory gate inflation in December. Howard Archer, chief UK and European economist at the analyst group IHS Global Insight, said in response to those figures that rising inflation is increasing pressure on the Bank of England to raise rates from the current level of 0.5%. 

http://www.sharecast.com/cgi-bin/sharecast/story.cgi?story_id=3979091

Tue, 01/18/2011 - 23:03 | Link to Comment Spalding_Smailes
Spalding_Smailes's picture

I'm glad Uncle Ben can move rates up in  .... " 15 minutes ".

 

LONDON (SHARECAST) - Factory gate inflation rose more than expected in December as the recent hike in commodity prices forced manufacturers to bump up their charges on goods. 

Producer prices rose 4.2% last month, its highest rate since April, the Office for National Statistics said. Forecasts had projected a rise of 3.9%. 

The latest figures will “do little for the Bank of England’s peace of mind,” said Howard Archer, chief UK and European economist at IHS Global Insight. 

The data is a measure of manufacturers' charges for goods and an indicative measure of inflation. Archer said that the price increases are “adding to the Bank of England's (BoE) problems and increasing pressure for an interest rate hike sooner rather than later.” 

The month on month increase from November grew by 0.5%, above the estimate of 0.4%. 

Input prices, which account for the cost of materials and fuels for manufacturers, grew by 12.5% last month, compared to a rise of 9.2% in November, mainly reflecting prices increases in oil and food products. 

“Companies have been keen to take advantage of decent manufacturing activity in 2010 to try and push their prices up and boost their margins in the face of elevated input costs,” Archer said. 

 

http://www.sharecast.com/cgi-bin/sharecast/story.cgi?story_id=3971998

Tue, 01/18/2011 - 23:06 | Link to Comment Dr. Porkchop
Dr. Porkchop's picture

Uncle Ben's 15 minute rise.

Tue, 01/18/2011 - 23:15 | Link to Comment Spalding_Smailes
Spalding_Smailes's picture

"The U.K., the third-largest owner of U.S. Treasurys, also set a record by pushing its holdings to $511.8 billion in November. Among all foreign investors, net purchases of U.S. Treasury notes and bonds totaled $61.7 billion, compared with net buying of $24.7 billion in October. Private foreign investors bought a net $51.5 billion of Treasury notes and bonds, after buying a net $25.9 billion the previous month.

IHS Global Insight said it sees continuing support for foreign demand for U.S. securities given expectations for a weak U.S. dollar, stronger U.S. economy and weak growth prospects for Europe and Japan."...... Lol

 

 

'http://online.wsj.com/article/BT-CO-20110118-712727.html

 

 

Tue, 01/18/2011 - 23:14 | Link to Comment CrockettAlmanac.com
CrockettAlmanac.com's picture

Uncle Ben's 15 minute rise.

Excellent!

Tue, 01/18/2011 - 23:07 | Link to Comment Mitchman
Mitchman's picture

Coming soon to a theater near you!

Tue, 01/18/2011 - 23:02 | Link to Comment Pants McPants
Pants McPants's picture

Translation: this will only affect brown people and people who practice a strange religion.  This reminds of a scene from Titanic.  You gotta love Cal.

Naval architect: "Half the people will die tonight"

Cal:  "Not the better half"

(yes I quoted Titanic)

Wed, 01/19/2011 - 00:51 | Link to Comment Oh regional Indian
Oh regional Indian's picture

Funny you should mention the titanic Pants. It was the 9/11 of it's day. People were just not sophisticated in the ways of skulduggery to question it much.

And twisted anal-ysis like the ones above do such a great job of disambiguating us from reality, were we to buy it.

The fact that a few people can decide who starves to death and who gorges to obesity, is in and of itself an obscenity. Kind of like those Reaper Drones, easy to pull the trigger in a far away location, away from the mayhem you are causing.

Perhaps taking food (the original commodity) and twisting it's supply demand into a profit motive of such proportions might be capitalism's ultimate mis-take. 

It's the one thing where both ends of the curve are completely in-elastic.

Cannot wait for a reality snap-back in these bastards faces.

ORI

http://aadivaahan.wordpress.com/2011/01/18/the-callousness-of-pornography/

Wed, 01/19/2011 - 09:48 | Link to Comment Hephasteus
Hephasteus's picture

It's weird how you can go over history and the past and see it through new eyes with changing perspectives. The titantic being the great depressions 9/11 is a perfect example.

Tue, 01/18/2011 - 23:02 | Link to Comment buzzsaw99
buzzsaw99's picture

I am happy to pay more for stuff if it benefits my alien lizard overlords.

Tue, 01/18/2011 - 23:17 | Link to Comment knukles
knukles's picture

At the margin, what is the addition to the global carbon footprint generated by all of the resources allocated to this incessant recommendations parade effectively ignored by the vast amjority of anybody who either gives a shit or counts?

Tue, 01/18/2011 - 23:35 | Link to Comment ILikeBoats
ILikeBoats's picture

I read here on ZH, for a rule-of-thumb, that a 1-cent per gallon gas price increase, over 1 year (e.g. 2010 average gas 2.99/gallon vs 2011 3.00/gallon) means $600 million in consumer spending vanishes.

What is the equivalent for food price increases?  Is there a rule of thumb that applies?

Wed, 01/19/2011 - 09:43 | Link to Comment XPolemic
XPolemic's picture

Actually, it is much worse for food. Grain production (which is used for livestock production) is a net energy consumer. That is, a ton of grain consumes more hydrocarbon calories than it produces.

So, an increase in crude would lead to an increase in food prices,which would then have a flow on effect on discretionary spending.

As a rule of thumb, the ratio crude price increase to food price increase is somewhere between 4:1 and 3:1. That is, if the price of crude doubles, food prices should increases by 25-30%. Translating that into gasoline, gasoline to crude is roughly 1.5, so a 1c increase in the price of gasoline should translate to 0.375 - 0.45 cents food price increase (lag is enormous though, 6M to 1Y).

According to this chart:

http://www.visualeconomics.com/how-the-average-us-consumer-spends-their-paycheck/

Consumers spend roughly the same amount on 'cook-at-home' food as they do on gasoline. They also spend as much on 'eat-out-food'.

Using your numbers above, that means that a 1c increase in gas equals a loss of discretionary spending of about $540mio in food.

But it doesn't end there. Plastics are made from petroleum. Synthetic fibers are made from petroleum. Dyes,soaps, industrial chemicals, and thousands of other products are made from petroleum. It is the single biggest factor in the price of consumables, and it is priced in USD ...

Tue, 01/18/2011 - 23:40 | Link to Comment Everyman
Everyman's picture

While clearly undesirable from the standpoint of households, these results suggests that as long as commodity prices stabilize relatively soon, the burst of food inflation would not have a major impact on the broader economic outlook.

Gee YA THINK!  "As long as they stabalize soon"?????  What a bunch of fucking idiots.  Do you actually need any education or common sense to secure a job with Goldamn SUCKS???  Who is the fucking genius that wrote that part?  There are simply NOT WORDS for that level of ignorance and stupidity.

ATTENTION GOLDAMN SUCKS!!!!  YOU ARE FUCKING IDIOTS AND PRICES WILL RISE BECAUSE "THE BERNAKE" IS DEBASING CURRENCY AND THIS WILL CONTINUE UNTIL THE IDIOT STOPS, DIES, OR  IS REMOVED FROM OFFICE!!!!!!

Gas prices continue to rise, and everything is decoupling with respect to "value" Price and "need".  Thank you for ignoring the obvious you idiots.

 

 

Tue, 01/18/2011 - 23:48 | Link to Comment lunaticfringe
lunaticfringe's picture

I am very disappointed in myself. I read that run on sentence myself and didn't catch the sheer stupidity of that sentence. I am a moron.

Can I haz job now at GS?

Wed, 01/19/2011 - 05:52 | Link to Comment Sudden Debt
Sudden Debt's picture

Just a few questions....

1. Are you on Facebook?

2. How many coffee muchs can you carry at once?

3. Do you have relatives that already work for GS or are in politics?

4. If you kiss ass, to you use your tongue?

5. Who really runs whashington?

 

The second test will be that you'll need to be able to steal my  wallet when I close my eyes for 2 seconds.

Tue, 01/18/2011 - 23:42 | Link to Comment KickIce
KickIce's picture

Translation:  We don't give a rat's ass just so long as the game continues and our fiat increases at a greater rate than inflation.

Tue, 01/18/2011 - 23:47 | Link to Comment RmcAZ
RmcAZ's picture

While clearly undesirable from the standpoint of households, these results suggests that as long as commodity prices stabilize relatively soon, the burst of food inflation would not have a major impact on the broader economic outlook.

What a freaking moron... why would this asshole go to the effort to write this report, and then throw that sentence in at the end. I would like to know, under what circumstances would commodity prices "stabilize"? What forces might cause food prices to go "down", maybe back to where they were a year ago? At the same time, these are the same guys saying the Dow will hit 36,000... why on earth would the Dow go that high and food prices not follow (or lead)?

Tue, 01/18/2011 - 23:48 | Link to Comment flaunt
flaunt's picture

"IF IF IF!"  This reminds me of people like Prechter who say that we're going to wind up with massive deflation and gold going to zero IF the government stops doing everything it is doing today and starts doing the exact opposite.  The argument seems to go, "if you take all the conditions that currently exist and invert them, then my scenario plays out nicely."  In other words, do the exact opposite of what these geniuses living in la-la land tell you to do.

Tue, 01/18/2011 - 23:51 | Link to Comment FromGaltsGulch
FromGaltsGulch's picture

And a surge in gas prices

and a surge in clothing prices

and a surge in health costs

falling home prices..

not a recipe for a strong economy

 

 

 

Wed, 01/19/2011 - 00:03 | Link to Comment Flapjackmaka
Flapjackmaka's picture

But the stocks are great!!11!!

/s

Wed, 01/19/2011 - 09:00 | Link to Comment weinerdog43
weinerdog43's picture

BTFD!

Tue, 01/18/2011 - 23:51 | Link to Comment lunaticfringe
lunaticfringe's picture

If enough people starve to death that will drive down demand. Then counterfeit driven inflation and demand will intersect and stabilize. FIFY

Tue, 01/18/2011 - 23:52 | Link to Comment Caviar Emptor
Caviar Emptor's picture

Attention shoppers: all remaining 12oz cans of coffee are now $52.95. Thank you for shopping at Tiffany's. 

Tue, 01/18/2011 - 23:54 | Link to Comment flaunt
flaunt's picture

Talking about CPI related to inflation is like talking "mark to fantasy" regarding MBS.  I guess they haven't noticed that prices can effectively go up without price tags themselves going up.  Rather than increasing prices companies are reducing quantity and keeping the price the same:

http://www.countryconsultant.com/blogspot/?p=1284

 

Tue, 01/18/2011 - 23:56 | Link to Comment serotonindumptruck
serotonindumptruck's picture

Although I've been fortunate enough to avoid knowing what true hunger/starvation feels like, I would strongly suspect that it would have a very negative, yet strongly motivating effect on most 1st world citizens. When the food shortages and rationing become painfully manifest, we will all experience, in one way or another, the horrific consequences of Empire Collapse.

Wed, 01/19/2011 - 00:02 | Link to Comment Caviar Emptor
Caviar Emptor's picture

It's never the children of privilege that experience hunger. Empires collapse when enough 3rd rate marginals are sufficiently hungry to storm the gates.

Wed, 01/19/2011 - 00:22 | Link to Comment serotonindumptruck
serotonindumptruck's picture

My education on empire collapse is limited to Jared Diamond's bestseller, "Collapse". For that reason, I won't attempt to generalize much. I understand that the lack of archeological and anthropological evidence makes most such discussions academic at best.

My basic understanding surrounding the catalysts/causes for collapse are: 1) the depletion of natural resources, and 2) competition for those resources.

I could segue into Peak Oil at this point, but I don't want to get too far OT.  

Wed, 01/19/2011 - 00:25 | Link to Comment Mad Max
Mad Max's picture

Diamond's thesis on collapse of societies (not just empires) is only one of several theses on that topic.  I think his is compelling and perhaps the most convincing, but it's not the only one.

If you don't already visit The Oil Drum, you may find it interesting.

Wed, 01/19/2011 - 09:31 | Link to Comment Blankman
Blankman's picture

I live in the midwest and if there ever was a food shortage it would take about a year of starvation to get 75% of the people I see every day down to a healthy weight. And I thought being in decent shape would help me live longer. The chubbies will survive and eventually run everything.

Wed, 01/19/2011 - 11:03 | Link to Comment Chump
Chump's picture

Thanks for the levity.  I'm in the Southeast and I agree whole-heartedly, except with the thought that the fatties will take over.  They'll be cannibals and kill each other off inside a month.  At least you'll be able to run in a land of waddlers.

Wed, 01/19/2011 - 00:00 | Link to Comment Flapjackmaka
Flapjackmaka's picture

Serious question for all. I just got into economics, it's interesting. When do you guys think thing will hit the fan for us? 1 year, 2 years, what? I just can't see the banksters manipulate the DOW up to infinity.

Wed, 01/19/2011 - 00:09 | Link to Comment Caviar Emptor
Caviar Emptor's picture

The point raised here and by most experts at large is that timelines are completely unpredictable. You can appreciate this when you consider these two self-contradictory statements that get repeated all the time: "Imbalances can go on for much, much longer than anyone could ever have predicted" and "when the final collapse arrives it's usually very sudden". Translation: the variables are too complex to make accurate time-based prognostications 

Wed, 01/19/2011 - 00:15 | Link to Comment lunaticfringe
lunaticfringe's picture

Flapjackmaka?? Dude you gotta find a different handle. Try to maintain a little dignity here. You didn't have your kid do the math question did you?

Wed, 01/19/2011 - 00:07 | Link to Comment Pike Bishop
Pike Bishop's picture

the recent surge in food commodity prices poses upside risk to both our core and headline CPI forecasts, particularly the latter.

That may be true you piece of Overlord shit. But it certainly increases your mortality downside risk that a bunch of people with net-negative fixed incomes, and inflamed rectums from going to the supermarket are gonna show up at your place and drain the water out of the Squid tank.

Wed, 01/19/2011 - 00:17 | Link to Comment lunaticfringe
lunaticfringe's picture

I got the guillotines on the back of Red's tow truck. I'm down for some fried calamari.

Wed, 01/19/2011 - 00:28 | Link to Comment ak_khanna
ak_khanna's picture

The only thing driving up food and commodity prices are speculator­s armed with cheap money and super fast computers. This is causing a havoc in the lives of rest of the population and pushing them towards poverty as they can no longer afford the basic necessitie­s of life.

The politician­­s around the world are nothing more than auction items which can be sold to the highest bidder. They will do whatever they can for the lobbyist paying them the maximum amount of money or votes, be it the unions, the banksters, the richest corporatio­­ns or individual­­s. They are in the power seat to extract maximum advantage for themselves in the small time frame they occupy the seat of power.

The rest of the population is least of their concerns. The only activity they do is pacify the majority of the population using false statistics and promises of a better future so that they do not lynch them and their masters while they are robbing the taxpayers.

Total ban on speculatio­n is strictly required all over the world to bring relief to the common man.

The basic mechanism of price discovery (based on demand and supply for actual use) of anything traded on an exchange has been terminally infected by speculator­s having access to unlimited funds and super fast computers for trading leading to volatile price swings. This has been made worse by the launch of ETFs for anything and everything under the sun by the financial community.

http://www­.marketora­cle.co.uk/­Article245­81.html

Wed, 01/19/2011 - 09:45 | Link to Comment sbenard
sbenard's picture

I guarantee that will cause HIGHER prices, not lower ones. Speculation is not the root cause; it is a symptom of problem, not the root cause. If you hack at the branches (speculators), the root cause (Fed's easy money) remains intact. History shows that by shrinking the size and liquidity of the market, it also shrinks the supply. This eventually results in HIGHER prices. Hugo Chavez has tampered endlessly with attempts to lower food prices in Venezuela, but supplies keep shrinking and prices keep going higher. The antidote to speculative influence is to increase the size and liqudity of the market, not shrink it.

The Hunt Bros' attempt to corner the silver market was a good example. When the market was small, their wealth could easily manipulate the market. But as prices rose, more and more people entered the market. Even housewives were selling their silver at pawn shops. But as the market size and liquidity rose, the Hunts lost control and the market crashed.

History shows that speculators are among the first to perceive an overbougght market and short it. CFTC and other studies have also repeatedly shown that speculators FOLLOW the market, not lead it. CFTC studies have also repeatedly shown that speculators constitute only about 12-18% of total trading volume, even during the commodity boom of 2008. In fact, CFTC studies showed that speculative trading during 2008 was LESS than during 2006, when commodity prices were supressed, as a percentage of total open interest. Studies have also repeatedly shown that non-exchange traded commodity prices rise HIGHER than non-futures traded commodities. If the presence of speculative funds were the real cause, this would not be the case. Those who blame speculators for high prices also forget that by necessity, speculators MUST offset their positions with an opposing position in order to exit the market and take profits. Hedgers don't because they take physical possession. Thus, by definition, speculators negate their effect on the market when they exit their positions. They have no choice! They have to!

The true net cause of high commodity prices is still the Fed's easy money policies that buoy up all risk assets. As long as the Fed is ramping up the stock market, commodity prices will too! Fed policy doesn't just increase the supply of funds. It is also suppressing interest rates that would otherwise give investors a viable alternative and reasonable returns. By denying investors these reasonable returns, it forces them to buy more speculative assets like commodities in order to try to preserve the value of their capital in an inflationary, dollar devaluative environment. Fed policies literally feed the inflationary monster by incentivizing risk assets more than would otherwise be warranted.

By shrinking the size and liquidity of commodities markets, we shoot ourselves in the foot because large investors -- the blue whales of the investment world -- will have GREATER influence on markets, and they will simply move their funds to other commodities exchanges in other countries, where their money is welcome. This thus causes capital flight, thus devaluing the Dollar even more, and thus amplifying the very effect that caused prices to rise in the first place. A blue whale has a lot more influence in a fish pond than the Pacific Ocean. It's the same in the financial markets. The larger and more liquid the market, the less influence the blue whale has. Limiting the market size and participation will drive prices HIGHER, not lower.

These are only a few of the reasons why all attempts to control prices by controlling markets lead to HIGHER prices, not lower ones!

Wed, 01/19/2011 - 00:41 | Link to Comment Nihilarian
Nihilarian's picture

 

Goldman Acknowledges Higher US Food Prices, Says Not A Concern If They Stabilize Soon

Translation: "Nothing is fucked here, provided nothing is fucked here".

 

Wed, 01/19/2011 - 01:31 | Link to Comment Everyman
Everyman's picture

These fuckers are "pushing it" right to the edge and are asking for all out violence.  These pricks.  Fuck 'em all.  I won't shed a tear when the first bankers are denied breathing any more air. 

How does the fat bonus do you now you  aren't breathing anymore????

Wed, 01/19/2011 - 01:50 | Link to Comment MarketTruth
MarketTruth's picture

"Higher food costs have yet to reach the retail level." -- Goldman Sachs

BULLSHIT!!!!!! At the retail level there has been over 10% food price inflation due to price increases or consumers getting less product per package in 2010. Add to this, in early January 2011 wholesalers saw price rise of 4 to 8 percent, and those costs are passed to the retailers who will of course pass it to consumers.

Wed, 01/19/2011 - 09:38 | Link to Comment Blankman
Blankman's picture

Well now you have to put his into perspective. Where the GS employees shop the caviar, exquisite cheese and fine wines have not seen too much of an increase in cost. Where you and I shop yes, meat and vegetables have seen an uptick in price.

Wed, 01/19/2011 - 02:08 | Link to Comment Moonrajah
Moonrajah's picture


While clearly undesirable from the standpoint of households, these results suggests that as long as commodity prices stabilize relatively soon, the burst of food inflation would not have a major impact on the broader economic outlook.

 

Google translates this from Bankstanese to English as:

 

Although the low- and middle-class are gradually coming to understand that they are ultimately fucked, we are our doing our best to populate the idea that if everything will be OK, then everything will be OK. Oh, and we have charts and tables to prove that.

Wed, 01/19/2011 - 04:43 | Link to Comment Temporalist
Temporalist's picture
No Job? No Income? No Problem for Consumers: Caroline Baum

http://www.bloomberg.com/news/2011-01-19/no-job-no-income-no-problem-for...

Wed, 01/19/2011 - 05:47 | Link to Comment JW n FL
JW n FL's picture
Inflationary forces dominate

18 Jan 2011 | 17:17

Patrick Armstrong

Categories: Economics / Markets

Tags: Bank of england | Macroeconomic focus

Patrick Armstrong, managing partner of Distinction Asset Management, reveals why he thinks inflation will continue to rise.

  Over the past year there has been much debate between the inflationary and deflationary camps. In the inflation camp people are worried about the effects of quantitative easing, printing of money, zero interest rate policies and rapidly rising energy and food prices.

 

The opposing camp counters with deflationary forces from weak economic growth, high unemployment and significant amounts of excess capacity in most Western economies.

 

We believe every month this debate is becoming more and more one sided with inflationary pressures continuing to dominate. There is no longer even a question of if there will be inflation, it is now a question of how much longer will inflation continue to breach the Bank of England (BoE) targets, and maximum levels.

Read more: http://www.investmentweek.co.uk/investment-week/feature/1937880/inflationary-forces-dominate#ixzz1BTNycv8U
Investment Week - News and analysis for investment advisors and wealth managers. Claim your free subscription today. ********************************************************************************** Inflate Bitchez! I suggest all of you take the ride up... to be able to afford things more easily... whatever you choose those things to be... is up too you.

Wed, 01/19/2011 - 08:23 | Link to Comment overmedicatedun...
overmedicatedundersexed's picture

OMG, can McD's profit from $1 menu when prices skyrocket for the Big Mac??

when gas hits $5 or more who will drive to eat high priced crap food??

seems there is a short here somewhere..no food for thought here just gruel and can ben save McD's ass??

Wed, 01/19/2011 - 08:38 | Link to Comment tradewithdave
tradewithdave's picture

We undertook some scientific research on food prices by correlating Bob Barker's Uncle Ben's converted rice with Drew Carey's Zatarain's in a Price is Right regression analysis spread over the average weight of the contestants in the showcase showdown over the past 35 years of the game show as a measurement of north american food consumption.  Here's the report http://tradewithdave.com/?p=4933

Dave Harrison

www.tradewithdave

Wed, 01/19/2011 - 09:10 | Link to Comment sbenard
sbenard's picture

"Stabilize soon"? Under what fantasy scenario. I'm a grain trader, and every day I expect prices to "stabilize", but instead,they keep marching higher day after day. Overnight, all the grains were higher, and significantly so. Higher food prices -- MUCH higher -- are coming. We should begin seeing them by spring, and by summer, the news will be rife with stories about the cost of food. Meanwhile the Fed continues to turn a blind eye to its catastrophic policies' consequences. They'll eventually try to blame traders, but the "speculators" are only the symptom. They will hack at the branches while the root causes remian intact. If they try to limit speculative trading, the impact will be short-term, but driving capital from the market will ultimately bring HIGHER prices, not lower prices.

All attempts to manipulate the market ultimately drive prices higher for a couple of reasons. First, starving the market of capital and liquidity ultimate shrink supplies. Second, shrinking the size and liquidity of the market empowers the blue whale invesotrs like Soros with MORE influence rather than less. A blue whale is just another "big fish" in the Pacific Ocean, but it can throw its weigh around in the local fish pond. The antidote to speculative influence is to increase the size and liquidity of the market, not shrink it. Soros would be thrilled, because then, his billions have great impact.

Wed, 01/19/2011 - 10:59 | Link to Comment Lone Mad Minute...
Lone Mad Minute Medic's picture

If we had a Republican in office, we might hear more bitching from the midstream media about the rise in food, oil, and homeless. But as long as the Manchurian candidate is pretending to be the leader, nothing but blue skies, rainbows and unicorns.

Wed, 01/19/2011 - 11:04 | Link to Comment Boonie
Boonie's picture

Bullshit on this view from Goldman.  My question, though, is how are you preparing for simple inflation in food prices or disruption in a very fragile food production and distribution network?  I'm not talking about a stockpile of canned beans and bags of rice.  Although some food stockpile is essential, do you know how to grow your own food?  How many calories would you need to produce or barter for yourself and/or your family?  Even if on a less than 1 acre suburban lot like mine, I still have some of my pole beans, winter squash and onions from last year from my large garden.  A freezer full of venison.  Just ordered my seeds for this year's garden, and entering year 5 of the garden finally have an idea of what grows and what doesn't grow in my soil.  Bought two more apple trees and a cherry tree (but, these won't bear fruit for another two years to add to my peach and apple trees.  Adding a strawberry patch to go with the blueberries this year.  Can't grow any grains on my lot and the wife won't allow me to raise chickens.  (Research wheat and you'll realize why it's been the essential grain for human existence for 6,000 years.)  In a long-term survival situation, do you know what is your minimal daily, monthly, annual amount of calories?  For your entire family?  I've calculated that for my family of five, a five acre plot is minimal for full self-sufficiency, but this would only be as a susistence farmer with only a drought, spring flood, or some other natural or man-made disaster away from starvation. 

Just some thoughts and wondering whether you have moved beyond waiting and predicting rampant food, etc. inflation and disruption and into planning.

  

Wed, 01/19/2011 - 11:08 | Link to Comment Ckierst1
Ckierst1's picture

Eat cake, bitchez!

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