http://finance.fortune.cnn.com/2011/02/0....

How inflation is turning breakfast into a luxury item
February 2, 2011 10:10 am


The Fed's policies are pricing basic morning staples out of reach -- and the results may come back to haunt even those who don't notice.
By Keith R. McCullough, Hedgeye

"Poverty wants some things, luxury many things, avarice all things."-Benjamin Franklin

Yesterday, one of our young Jedi analysts at Hedgeye, Kevin Kaiser, sent me a highlight from The Grocer (an industry trade rag) that inflating food prices are making ordinary breakfast items like orange and apple juice a "luxury."

Now a Wall Street analyst at a sell side investment bank would find a way to dress this data point up with a pig's lipstick and call it an "affordable luxury." Someone working for Federal Reserve Chief Ben Bernanke probably calls something like breakfast "non-core" or "free." But we simpleton, non-recipients of government bailout moneys, just call it what it is – inflation.

Six months ago we didn't have global inflation accelerating. We had a US dollar index that wasn't being debauched (7.7% higher at $83), a CRB Commodities Index (19 commodity basket) that was 30% lower in price, and we didn't have Quantitative Guessing Part Deux either. Back then, free markets pricing in a strong U.S. dollar and low inflation was a bullish signal to buy U.S. equities. Today, the latest big government intervention scheme is debauching the dollar and perpetuating higher inflation. Back then, I dropped my cash position to 46%. Today, I've raised it to 67%. (And understand that I'm not one of these perma-bulls who needs to be invested trying to get back to a 2007 high-water mark gone bad.)

Yesterday, we saw a new high-water mark established in the real-world inflation reading. With the U.S. dollar getting burned at the stake (down 1% on the day, making a move towards a 6-month low), the CRB Commodities Index was hitting a freshly squeezed 6-month high. All luxury things considered, if you are one of the 44 milllion Americans who lives on food stamps, how do you like them apples?

Now setting aside the inconvenient truth that there's never been a global economic powerhouse that has devalued its way to prosperity, let's give the Bernanke a little something to bring to his dance with America's new chair of the US Financial Services Sub-Committee on Domestic Monetary Policy, Ron Paul, on February 9th. Here are the 6-month price percentage moves in some of the things people need to live with:

•Cotton = +125.7%
•Sugar = +82.6%
•Corn = +59.0%
•Coffee = +41.4%
•Rice = +40.5%
•Oats = +36.6%
•Copper = +36.1%
•Lumber = +33.8%
•Oil = +25.1%
Yeah, I guess for the sake of professional policy makers in DC who get dinner for free and a car service to work, I should stop there. To make the Top 10 things that may or may not be considered "luxury things," you really need to have inflated on the order of 25% or more. Pork bellies are only up 10.7% in the last 6 months – so go have yourself some powdered Keynesian Kool-Aid with some sausage links for lunch and like it.

Over that same 6-month period the dollar has droppred almost 6% and now has an inverse correlation to the price of rice and wheat.

So where does that leave the almighty American Consumer? That's easy, pull up some charts of U.S. consumer stocks – and pull up some big ones like Procter & Gamble (PG), McDonalds (MCD), and Target (TGT).

Sure, since most people in this business read points of view in terms of how it directly addresses their personal positioning, I'm sure you can find me some US Consumer stocks that used to look like Coach (COH) -- before the man-purse idea didn't take CEO Lew Frankfort to the moon -- but overall, Consumer Staples (XLP) and Consumer Discretionary (XLY) are the 2 worst sectors in the entire US stock market all of a sudden for a reason, down 1.84% and 0.97% in the last 3 weeks of trading, respectively.

On a more positive note, Hosni Mubarak turned on the internet. So now all of our Egyptian friends can start tweeting Hedgeye's 6-month table of real-world inflation to their friends again. Social networking tools are going to continue to revolutionize the transparency and accountability standards that the people of this world hold their governments to. That's a luxury thing of personal liberty that I can believe in.


Hedgeye 6-month commodity index
Related Articles on Fortune.com

I've been feeling the pinch at the grocery store, but to see all the basic commodities I use regularly expressed in those percentages was a shock. Looks like I'm going to need more room in my basement to stock up.

Thanks for the great article!

If this continues at the same pace, this summer should see a lot more defaults beginning on all forms of debt, as people make the choice between paying bills and eating.

Some interesting comments at the bottom that article -- more than a handful claiming price increase is purely supply/demand related and not at all related to

I'm going to copy and paste that article to another forum I participate on. Its a typical American idiot forum, a community forum in Missouri.

It will be completely ignored except by 1 or 2 individuals that have actually nurtured their minds over the years. They'll understand the implications but the rest, won't find any entertainment in this topic.

Ugh. Well, at least beans weren't on the list. :/

You can't get it through people's heads that this is a result of easy money having to go somewhere. Instead they tell you it is supply and demand. Ya...you also told me it was supply and demand when oil was at 150.

You can't get it through their heads because they are uneducated clueless idiots ... Period ... they do & believe exactly what they are told by the propaganda apparatus and never think for themselves with the evidence in front of their faces.. The Federal Reserve IS GOOD. The Gov IS GOOD. They've been told this their entire lives and it's just too much for them to question.

Makes me want to puke.

http://www.cnn.com/2011/WORLD/europe/02/....

World food prices hit record high

London (CNN) -- World food prices rose to an all-time high in January, according to the UN's Food and Agriculture Organization (FAO).

The FAO's Food Price Index measures the cost of a basket of basic food supplies -- sugar, cereals, dairy, oils and fats and meat -- across the globe.

The index rose by 3.4% in January -- the seventh monthly increase in a row -- to its highest level since records began in 1990.

The cost of sugar, cereals, dairy and oils and fats all went up last month, while meat prices remained steady.

FAO economist Abdolreza Abbassian said high prices were likely to persist in the months to come.

Rising commodities costs are one of the major factors behind a growing wave of civil unrest across the Middle East and North Africa.

"High food prices are of major concern especially for low-income food deficit countries that may face problems financing food imports, and for poor households which spend a large share of their income on food," said Abbassian.

Responding to the FAO's announcement, Oxfam said the latest price rises "should ring alarm bells in capitals around the world."

"If prices remain high it will be just a matter of months before the world's poor are hit by another major food price crisis," said Chris Leather, the charity's policy advisor. Governments need to act now and act together to stop the rot.

"High global food prices risk hunger for millions of people. Poor people in developing countries spend up to 80% of their income on food. For them high food prices mean selling off their land or sacrificing their child's education simply to put food on the table."

Last week at the World Economic Forum in Davos, Switzerland, economist Nouriel Roubini warned that rapidly rising food prices posed a serious threat to global stability.

"What has happened in Tunisia and is happening right now in Egypt, but also the riots in Morocco, Algeria, Pakistan, are related not only to high unemployment rates and to income and wealth inequality, but also to the very sharp rise in food and commodity prices," he told CNN.

I posted this on a Ticker. I normally paid 4.50/lb for this item. That's over double in price.

Egypt might be aflame but I have a personal crisis right here at home. Wright's thick sliced bacon (best in the MF world) is now, get this, NINE DOLLARS and FIFTY CENTS a POUND!!! Jesus ****in Ke rist!! I love that stuff. I eat it like M&Ms. I can eat 1/2lb at one sitting (would eat more but the wife unit, the ho). I put in in everything. But NINE DOLLARS and FIFTY CENTS!!!! No way in hell I'm paying that. I quit. Let the flames ignite. Life might not be worth living. Father of Reds

Wife unit tells me she is seeing a lot of*****ed off people in the store, in loud voices saying hell no. Some are waking up. FORs

Agree

Gallon of Dean's 2% Milk - four and one half clams

Even my lowly HEB Saltines have now gone to about $1.20 per box from $0.89 a few months ago. Kaint imagine what this will do to "normal" families with fixed REAL budgets and children at home to feed(we had 6 here at one time).

It's sickening. I don't eat all that much, but the food that I buy is becoming a larger and larger part of my budget, even tho I've been paring back and back. (And forget about eating out - unless someone else is paying, it ain't happening ;) My stocking up right now consists of grabbing as much "buy one get one free" items at the local Publix as they'll let me carry out ;)

Like Johnny above, I can't imagine what families with kids are going thru.

In his press conf. just now BB claimed credit for pumping stock prices with QE but denied responsibility for food inflation - putz...

Quote:

Like Johnny above, I can't imagine what families with kids are going thru.

It sucks. A lot of what we buy is bulk and at discount stores, even so, prices are up so much that it's difficult to deal with.

QE into rapidly tightening food stocks is not going to work out well for a lot of people.

My grocery bill has stayed virtually the same for a couple of years now.

My diet is almost 100% BBQ'd meat (pork/chicken/beef), steamed or raw fresh vegetables, different nuts, and then filtered water. I don't eat hardly anything else.

If I ate rice (which has gone up 200% since 2007), or some of these similar things, then yes, I'd see the difference.

Now if they start ****ing with my coffee, I'm going to have to choke a ho.

I've found some decent coupons for rice lately.

I buy rice for my Doomsday pantry so I keep an eye on the price. In early 2007, the price for a 50-pound bag at Costco of Jasmine Thai rice was $17. Then it doubled to $39 after the Thai rice panic in 2008. Yesterday I went to Costco and the same bag of rice is now $57.

The sharpest price increase I've seen for my food has been pork loin which went from $2.39 at Costco last summer to $2.89, which is where it's still at but is still uber-cheap.

I get rice from my local asian market, about $17 for a 20lb bad of the good stuff. It goes cheaper depending on the brand.

That's good you can still buy it cheap there. I bet if I went to an Asian store I could find a bag for $0.40/pound. Over $1/pound for bulk rice is pretty insane.

My little market here has, and I'm not exaggerating, at least 50 different types of rice. All colors, sizes, etc.

They have pretty good sales on other stuff I use a lot too, like bags of potstickers and soy sauce is 1/4 of the price of the grocery for twice as much sauce.

Everyone needs to just STFU.

Skyrocketing food inflation is just the price that has to be paid to save the US bankers. So what if people around the world have to starve, this just what has to be done.

Could you imagine how bad off we all would be right now if these hard working men and women on Wall Street had to return some of the money the worked so hard to steal?

How could they face their friends again if they had to sell their house in the Hamptons or give up the GT3 RS they just bought?

Well, obviously I need to start eating more meat and less rice ... ;)