Tuesday, November 16, 2010

The Food Inflation Nightmare Is About To Hit 40% Of The World's Population

Editors Note: In My Oct 29 newsletter I warned of high inflation ahead.
Commodities Prices the Largest Influence in Next 14 mths:
Most investors are aware that commodities have been increasing dramatically over the last 10 months but few are aware that the Commodities Research Bureau Index of most major commodities including metals and crops is up an astonishing 42.4% already this year.

The reason I watch this index closely throughout my 30 years of investing in markets is that I have concluded that it is a early warning of higher inflation in the future.
If commodity prices increase the manufactures are forced to raise prices of their products. Soon thereafter wholesalers raise their prices which is reflected in the producer Price Index P.P.I. and finally the consumer realizes there's high inflation when it is too late when and it shows up in the Consumer Price Index.  The CPI which is always manipulated by governments around the world to reflect a better than reality scenario. 
Governments watch these indexes closely and if they find they are increasing dramatically, beyond the means of their citizens, they attempt to fight it by raising interest rates. Australia has already done this by raising their prime rate to 4 1/2%.
You must understand that many markets are influenced by a higher interest rates. Real estate in highly leveraged real estate markets will see less demand as more people cannot afford to purchase with higher interest rates. Consumers will curtail spending if they are required to pay more for credit card interest thus influencing the stock markets. Nobody wants to purchase a bond which is only paying for 5% if they know they can get 8 to 10% in the future so bond prices drop.
Inflation can Your Friend or Your Enemy:

Inflation can your friend or your enemy. Inflation will be your enemy if you keep money in a bank at 1% to 5%. Bond buyers will be hurt by higher interest rates. Real Estate in markets where there has been low interest rates and high % mortgages such as Singapore, Sydney, and most Chinese Cities will see less demand therefore a leveling off or even most likely a decrease in prices. Higher inflation usually kills the stock and mutual fund markets maybe as early as the end of next year.
 Higher Inflation Can Leave you High and Dry:

Inflation is like the tide it raises all boats. If you want smooth sailing you must invest in Tangible Assets. Inflation will be your friend if you keep your money in Tangible Assets that you can touch and feel. My favorite tangibles are Gold, Silver, Copper, Rare Metals, Cereal Crops and Non- Leveraged Low priced Real Estate with low supply and high demand such as what is available in Bali - One of the best real estate markets in the world.

Another of my Predictions Comes True :
Sep. 17, 2010, 1:21 PM

Overnight, the threat of further Chinese tightening multiplied as a result of food price inflation. A basket of 18 key vegetables saw their prices increase by 62.4%, year-over-year, in the first 10 days of November.

But just how likely is Chinese tightening?

Waverly Advisors feel that it is now a near certainty, based on the political realities within China.

The fact that Premier Wen Jiabo chose a supermarket as the location for a press appearance to comment on anti-inflationary measures today indicated how seriously Beijing is taking the potential disruptive impact of rising cost at the cash register.

But this isn't just a Chinese problem. 40% of the world's population, found in China, India, and Brazil, is seeing their food prices skyrocket as a result of price inflation. Note India's has actually decreased, but remains close to double digit territory.

From Waverly Advisors:


Image: Waverly Advisors
Here are the 25 countries that will get slammed in a world food crisis
The 25 Countries That Will Be Screwed By A World Food Crisis
Gregory White | Sep. 17, 2010, 1:21 PM | 509,426 | comment 21

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venezuela riotConcerned about whether you have enough food in your fridge? How about for the worst case scenario?

Japanese investment bank Nomura produced a research report detailing the countries that would be crushed in a food crisis.

Their description of a food crisis is a prolonged price spike. They calculate the states that have the most to lose by a formula including:

* Nominal GDP per capita in USD at market exchange rates.
* The share of food in total household consumption.
* Net food exports as a percentage of GDP.

We've got the top 25 countries in danger here and the list, including a major financial center, may surprise you.


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