Food prices are more important than Energy prices

Finally, the Mainstream Media is picking up on the cost of food.

I will repeat myself:  People don't need to drive but they do need to eat.  

Gasoline shortages might have political repercussions - food shortages will have riotous social implications.  There is a big difference.

No, rich folks living in Boca Raton, Florida or Beverly Hills, California will not be missing any meals any time soon.  But far more people receive food assistance in the U.S. than make over $300,000 per year annually - a common measure of "rich" versus "middle class" in the U.S. - and for those folks this is serious stuff.  Did I mention that they vote? 

Opportunities abound for investors, but we must take the political ramifications of probable outcomes into consideration as well.

Egg prices.  Now there is something you don't talk about every day, but egg prices are up 45% in a year.  I am amazed that the financial media accepts the U.S. Governments inflation data.  Nothing in the government's data is consistent with what the American public experiences at the gas pump, grocery check out counter, healthcare, college tuition, etc...   What's up with that?

Milk costs more than gasoline.  The article is using data from the U.S.'s North and South Dakota.  Milk in Florida is already nearly $5 per gallon.  The diesel costs for transporting milk, over 90% of which is transported by truck obviously increase the farther distance.  Florida is a long way from Wisconsin.

Surprisingly, price increases for bread have trailed milk and eggs, but is still up more than 10% per year for each of the past 3 years.

I don't have to go into gasoline prices...

So... you are an employer.  Your employees have a zero savings rate and their transportation, food, and utility costs are rising better than 10% per year.  How long before you have to give them a raise just to get them to come to work?  Wage inflation pressures come from many directions.  Until a year or 2 ago your employees were being subsidized by home equity loans - but not now.  Somewhere in all of this you going to have to pay your people more.  But how can

you pass these costs on to your customers?  They have a zero savings rate and increasing expenses, too.  

This is why I tell business owners and employers to reconsider your plans for "growth". Growth costs money, it does not come for free.  Business owners would be far better off to use the capital (read profits) they had previously been using to grow their business to buy hard assets.  

Think about this:  A coupe of months ago Bear Stearns was the cock of the walk - now where are they?  The value of their business collapsed almost overnight.  I know a great many former Bear Stearns Managing Directors who wish they had traded their stock certificates for gold bullion, or oil futures, or Iowa farmland long ago.  But way back then (3 months ago) it was INCONCEIVABLE that the value of their stock certificates would be worth little more than expensive wall paper.  It is always that way.

Remember that I am speaking in terms of CONSTANT, or real, dollars.  Nominally I fully expect many sectors of the U.S. equity market to rise.  In real and nominal terms I believe fixed income investors are not being compensated for the risks they are taking in holding bonds at these yields with the trade deficit being what it is and accordingly I am not holding this stuff.  (Yes, I know bond investors have done better than equity investor over the past 12 months - but they are not even on the map when compared to returns in the commodity sector.  And the game ain't over.)

Borrowing money for business expansion is a very tricky issue.  Yes, inflation benefits debtors (and I am in the inflation camp) but only if the asset you are leveraging benefits from said inflation.  If not, that strategy is a fast dance step to bankruptcy court.  

Protecting your assets as well as your the source of your wealth in this environment is paramount.  Don't fail yourself.

Yours for a better world,

Mentatt (at) yahoo (d0t) com