Guest Post: Preparing Accordingly II

Tyler Durden's picture

Submitted by TF Metals Report

Preparing Accordingly II

A frequent topic here has been the ongoing and still-building food
inflation crisis. The MSM is just now awakening and beginning to discuss
the implications. By the time the great unwashed become fully aware of
the magnitude of this problem, it will be too late. You, my dear reader,
still have time to prepare.

As you know by now, the endless money printing by our inept and foolish
"leaders" is causing prices to rise in all things dollar-denominated.
Economics 101 teaches us that more dollars chasing a static supply of
goods leads to an increase in price. Eventually, these rising input
costs are passed along to the consumer in the form of cost-push
inflation. This insidious monster is the most painful of economic
afflictions as rising costs are not met with commensurate rises in
wages. The pain to the consumer is great and often brings about social
unrest and upheaval. We will surely discuss this phenomenon in greater
detail in the days ahead. For now, I wanted to give you charts on some
items that we don't normally follow here, just so you can grasp the
dimension and scale of that which lies ahead.

First up is the primary commodity index, the C.R.B. Here is the current makeup of the index:

Energy Crude Oil, Heating Oil,
Natural Gas
17.6%
Grains Wheat, Corn, Soybeans 17.6%
Industrials Copper, Cotton 11.8%
Meats Live Cattle, Lean Hogs 11.8%
Softs Coffee, Cocoa, Sugar
Orange Juice
23.5%
Precious
Metals
Gold, Silver, Platinum 17.6%

And here is a weekly chart:

When
did the index really take off? Last July. Why then? That's when the
realization was made that QE2 was coming. Will it continue rising? As
long as QE continues? Will QE ever end? No. It can't.

First up, coffee. Coffee is a great cost-push example. For now,
companies like Starbucks are trying to absorb some of this rise in price
by slashing margins and other internal "controls". They can't can't
keep this up forever, though, so soon your latte is going up in price. A
lot. Interestingly, SBUX has risen about 30% since July. Does that add
up for you? Me, neither.

OK, now, here's where the real problem is: Corn and the other grains.
 The dispshit shills, LIESman, Krugman et al , can wax prophetic all
they want about the minimal impact these higher prices will have on the
consumer. You can draw three conclusions from this:
1) They are all profoundly stupid, almost to the point of partial retardation.
2) They are criminally negligent in their lack of basic economic education.
3) They are deliberately misleading people in the hopes of maintaining the ponzi as long as possible.

I'll let you decide which is true. I know which one I believe.

Back to corn. Look at this chart:

This near 100% move has occurred in the offseason. What happens if we get a little drought in the American midwest this summer?

What the shills fail to recognize is the interaction between
agricultural commodities. In this case, its the relationship between
corn, cattle and hogs. You see, if you're a rancher or a pig farmer,
your primary input cost is feed. (Ever heard of the term "midwest
corn-fed beef"?) When feed costs double, your first move as you attempt
to control costs is to sell some of your stock. As those cows and pigs
come to market, their presence has the same impact as any other increase
in supply...a temporary suppression of price. Yet, even in this
environment, look at a cattle chart:

And look at hogs:

The
only thing that has kept cow and pig prices from rising at the same
rate as the grains is this temporary increase in supply. Replacement
rate of a herd or barn is usually not much more than 1:1 so it follows
that all of the excess supply currently in the market will lead to a
commensurate drop in supply later this year. Add less
supply to increased demand (due to QE) and you get explosive price
increases. So, not only are the grains significantly more expensive,
protein is, too. Not good. Not good at all.

Thus the phrase: Prepare Accordingly. The time is now. We're already
seeing, in other parts of the globe, what hungry, desperate people are
willing to do. This will continue and get worse.
Prepare yourselves.
Prepare your families.
Prepare your friends.
Consider things through to their logical conclusions.
Be ready for any and all eventualities.

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Tedster's picture

A-S : You Da Man! Thanks for that link. Yup, N. rustica, will plant that one for show, but seek out the 65 day variety you mention.

What is bizarre, overall, have been stocking and stacking for many years. Now in the last few years all this stuff has gone mainstream. Something about the 90s told me this was going to end badly, but my timing was off, figured it would be another 20 years or so, about the time of my alleged retirement. And the level of corruption and so on, is far greater than I would have believed.

tradewithdave's picture

I don't see what all the fuss is about.  Didn't you know IHOP is home of the pancake rEVOLution? 

http://tradewithdave.com/?p=5321  .  Don't miss our guillotine piece on how Mervyn King weighed in his own head in Great British Pound of Flesh http://tradewithdave.com/?p=5310.

Dave Harrison

tradewithdave.com

 

Bringin It's picture

Re. sbux.  I am not a buyer of sbux, but they are expanding into emerging markets.  Emerging markets that export agricultural commodities, like food. 

IMO - the currencies of emerging market countries, that export food and maybe some other commodities like palm oil and rubber will find buyers.

Therefore, the purchasing power in these countries may be protected and sbux is on to something.

Thanks for the blog Turd.

PulauHantu29's picture

Blueberries up 52% and Snickers Bars up 48% in 18 months....tip of the iceberg.

Mike2756's picture

Yep, they already have passed some of the cost on via stealth increases or outright price increases. BK jr whopper was $1, now $1.49.

colonial's picture

Hey Tyler:  I was at the NPC and thought BB comments were not properly reported.  He pushed back on the concept that the US Fed is seeking to stabilize global systems.  For any dictator, communist or central banker listening, BB said that his concerns are the US alone. 

When, (gently,) pressed further he said that if other central banks/countries are playing games with their currencies and don't have the reserves to handle the impact of QE, that's tough.  I was stunned.   

BB is breaking anyone out there who is using their currency or trade policy to block the flow of all our dollars...and the cheap American goods that will come after. 

Its like monetary water-boarding. 

Maybe, BB knows he's on his own and the only way to save the US is to flood the world with dollars and then force global markets to buy our cheap goods.  He's going to force China, and anyone else trying to de-value their way to economic growth to either pay dearly for it, or give in and allow more balanced trade

I agree with one of the posters above who said, that the "softs" will run, only so far as they will reach a breaking point, (like oil.)  What then? 

Yes, it will be hard in the US, very hard, but we are the reserve currency and still the leading economy.  We produce guns and butter.  This is going to really hurt many of the economies/governments we hate. 

All this talk about social networking bringing down Tunisia and Egypt?  Its Ben and he knows that his actions are going to lead to blood in the streets.  But there will be less blood here (we exchange dollars for everything,) and I bet he's thinking other economies will succumb to the "old world order" rather than risk losing power. 

For those of you who will say that this concept works for everything but oil, consider the economies that produce oil.  Are they fair to their citizens?  Do they use their revenues to promote human rights?  Do most OPEC nations have open governments?  We know the Arab world is young, poor and unemployed.   

Maybe this is the mother of all Imperialistic moves.  Also, since it seems we're going to save our banks (tbtf,) and pump the world with trillions of US dollars, (this is our only and therefore best idea,) the entities who profit from this are the leading US global multi-national corporations, who are, it just so happens, the key clients of the big banks...his member banks. 

It makes Reagan's gambit to break the Soviet Union look like a game of checkers.    

Lord Koos's picture

A couple of problems with this... first, what American products are people going to buy from us?  Guns and food?  That's not enough to keep people employed.

The other problem is that the American people don't have the reserves to weather endless QE...

gwar5's picture

Exactly. 

We have an unelected, unaccountable Federal Reserve commandeering our foreign policy and our domestic policy for decades to come. He is telling us who is really in charge of the country. He is on a one way trip with the USD and it is supposed to end in a global fiat entity.

We need to end the Fed, and accept no further private banking fiat monsters, including the IMF.

cranky-old-geezer's picture

Let's get the terminology right:

"Inflation" and "deflation" have to do with the money supply.  When the money supply gets larger, that's inflation.  They're inflating the money supply.  Like inflating a baloon, it gets larger.  Deflation is shrinking the money supply.  Like deflating a baloon, it gets smaller.

"Rising prices" and "falling prices" have to do with the things we buy with money.  Prices rise, stay level, or fall. 

Inflating the money supply beyond the increase in goods and services causes prices to rise, all other things being equal, because each unit of money loses value, requiring more units of money to purchase the item

Deflating the money supply beyond reduction in goods and services causes prices to fall, all other things being equal, because each unit of money gains value, requiring fewer units of money to purchase the item.

Supply & demand affect prices also.

In residential real estate we have a unique situation where supply is growing slightly but demand is falling sharply due to massive unemployment, massive under-employment, and massive chain-of-title destruction by lenders.  Sharply falling demand for homes causes prices to fall dramatically.

Inflating the money supply at the same time (via massive monetization of government debt) counteracts some of this dramatic price collapse.

The Fed hopes to inflate the money supply enough to halt this dramatic price collapse and reverse it, making prices actually rise again, despite the massive collapse in demand for homes.

But inflating the money supply enough to halt the demand-collapse price collapse in housing  causes prices of other things (where demand is still strong) to rise dramatically. Examples are food, fuel, and precious metals, where prices have risen 30% - 40% in the past year.

Econ 101 

Why would the Fed want to massively inflate the money supply to halt the demand-collapse price collapse in housing, knowing full well it's causing large price increases in food, fuel, etc? 

The Fed hopes to maintain real estate price levels so banks won't have to mark down the value of real estate on their books.  But it's not working.  Real estate prices are still falling.  So the Fed tells the goverment to change accounting rules allowing banks to keep real estate values high on their books.  This is called "mark-to-myth" accounting.

Acct 101

"Mark-to-myth" accounting is fraud.

Law 101

Fraud is perfectly ok when government does it and allows banks to do it.

Govt 101

But nobody wants to buy a home with a street value of $50,000 when the bank says it's worth $200,000.  So demand for homes collapses further, causing street prices to collapse further.

Econ 101

See, a first year college student can figure this stuff out.

But PhD economists apparently can't.