Tag: finance

The New York Times’ Hiroko Masuike captured customers at The Smith restaurant in Manhattan Wednesday evening, bundled up in winter jackets, underneath propane heaters on a sidewalk patio, while the first major winter storm of the season blanketed the city nearly one foot of snow. 

Thanks to Andrew Cuomo’s decision to once again shut down indoor dining in New York on Monday, these patrons had to eat outside in the middle of a freakin’ snowstorm. 

As the wind blew, the propane heaters appeared worthless as a few of the patrons were sipping on soup and have likely downed a liquor shot or two to stay warm. 

Perhaps the patrons on Wednesday night were devoted customers supporting their local restaurants, rain or shine, considering a record number of eateries across the country can’t pay December rent. 

As we’ve mentioned before, Goldman Sachs has noted that if daily average temperatures slide below 40°F – then it would be associated with a steep drop off in consumer activity at eateries. 

So back to the picture – patrons can thank the government for why they had to eat a nice meal outside in the middle of a major snowstorm. 

Via SchiffGold.com,

Three bills prefiled in the South Carolina House would cut taxes on precious metals and take important steps toward treating gold and silver as money instead of as commodities. Passage of these bills would also set the stage to undermine the Federal Reserve’s monopoly on money.

South Carolina is the first state to propose this kind of legislation for the 2021 session, but more states will likely follow suit. This is part of a broader movement at the state level to support sound money.

The Federal Reserve is the engine that drives the most powerful government in the history of the world. Ron Paul popularized the slogan “End the Fed,” but Congress is nowhere near abolishing the central bank.  It can’t even come up with the will to audit the Fed.

Even though state action can’t end the Fed, there are steps states can take that will undermine the Federal Reserve’s monopoly on money. By passing laws that encourage and incentivize the use of gold and silver in daily transactions by the general public, state action such as the passage of these bills in South Carolina has the potential to create a wide-reaching impact and set the foundation to nullify the Fed’s monopoly power over the monetary system.

Rep. Stewart Jones (R-Laurens) filed all three bills.

House Bill 3377 (H3377) would make gold and silver coins legal tender in the state. Under the proposed law, “gold and silver coins minted foreign or domestic shall be legal tender in the State of South Carolina under the laws of this State. No person or other entity may compel another person or other entity to tender or accept gold or silver coin unless agreed upon by the parties.”

Practically speaking, this would allow South Carolina residents to use gold or silver coins to pay taxes and other debts owed to the state. In effect, it would put gold and silver on the same footing as Federal Reserve notes.

The phrase, “unless agreed upon by the parties” has important legal ramifications. This wording reaffirms the court’s ability, and constitutional responsibility according to Article I, Section 10, to require specific performance when enforcing such contracts. If voluntary parties agree to be paid, or to pay, in gold and silver coin, South Carolina courts could not substitute any other thing, e.g. Federal Reserve Notes, as payment.

South Carolina could become the fourth state to recognize gold and silver as legal tender. Utah led the way, reestablishing constitutional money in 2011. Wyoming and Oklahoma have since joined.

KNOCKING DOWN BARRIERS

Taxes on gold and silver erect barriers to using gold and silver as money by raising transaction costs. House Bill 3378 (H3378) would effectively exempt gold, silver and platinum bullion from state capital gains taxes. Passage of this legislation would eliminate a barrier to investing in gold and silver. It would also make it more practical to gold and silver in everyday transactions, a foundational step for people to undermine the Federal Reserve’s monopoly on money.

South Carolina has already repealed the sales tax on gold and silver. That removed one barrier to buying gold and silver. Passage of H3378 would remove another.

In effect, “states that collect taxes on purchases of precious metals act as if gold and silver aren’t money at all.”

Imagine if you asked a grocery clerk to break a $5 bill and he charged you a 35 cent tax. Silly, right? After all, you were only exchanging one form of money for another. But that’s essentially what South Carolina’s capital gains tax on gold and silver bullion does. By eliminating this tax on the exchange of gold and silver, South Carolina would treat specie as money instead of a commodity. This represents a small step toward reestablishing gold and silver as legal tender and breaking down the Fed’s monopoly on money.

“We ought not to tax money – and that’s a good idea. It makes no sense to tax money,” former U.S. Rep. Ron Paul said during testimony in support an Arizona bill that repealed capital gains taxes on gold and silver in that state. “Paper is not money, it’s fraud,” he continued.

GOLD BULLION DEPOSITORY

Stewart also prefiled House Bill 3379 (H3379). This joint resolution would create a study committee to determine the feasibility and efficacy of the establishment of a bullion repository in this state to store gold, silver, and other metals for the state’s reserves and for investments. The committee would be required to issue a report of its findings to the General Assembly by January 15, 2022.

South Carolina has a model it could follow. In the summer of 2015, Texas Gov. Doug Abbot signed a law creating a state gold bullion and precious metal depository in his state. The depository received its first deposits in the summer of 2018. The facility will not only provide a secure place for individuals, businesses, cities, counties, government agencies and even other countries to store gold and other precious metals, the law also creates a mechanism to facilitate the everyday use of gold and silver in transactions. In short, a person will eventually be able to deposit gold or silver – and pay other people through electronic means or checks – in sound money.

A state gold repository also creates an avenue toward financial independence. Countries around the world, including China, Russia and Turkey, have been buying gold to limit their dependence on the US dollar. University of Houston political science professor Brandon Rottinghaus said a state depository can serve a similar function for Texas.

“This is another in a long line of ways to make Texas more self-reliant and less tethered to the federal government. The financial impact is small but the political impact is telling, Many conservatives are interested in returning to the gold standard and circumvent the Federal reserve in whatever small way they can.”

The Tennessee legislature passed a resolution declaring support for the creation of a gold bullion depository in the Volunteer State back in 2016, but never followed up with any legislation. If South Carolina does create a study committee, it will be imperative to follow up with further legislation to actually establish a repository once the report is issued.

BACKGROUND

The United States Constitution states in Article I, Section 10, “No State shall…make any Thing but gold and silver Coin a Tender in Payment of Debts.” Currently, all debts and taxes in South Carolina are either paid with Federal Reserve Notes (dollars) which were authorized as legal tender by Congress or with coins issued by the U.S. Treasury — very few of which have gold or silver in them.

The Federal Reserve destroys this constitutional monetary system by creating a monopoly based on its fiat currency. Without the backing of gold or silver, the central bank can easily create money out of thin air. This not only devalues your purchasing power over time; it also allows the federal government to borrow and spend far beyond what would be possible in a sound money system. Without the Fed, the US government wouldn’t be able to maintain all of its unconstitutional wars and programs.

Passage of H3377 would reestablish gold and silver as legal tender in the state and take a step toward that constitutional requirement, ignored for decades in every state. Passing H3378 would remove one of the tax barriers that hinder the use of gold and silver as money.

Passage of both bills would also begin the process of abolishing the Federal Reserve system by attacking it from the bottom up – pulling the rug out from under it by working to make its functions irrelevant at the state and local levels, and setting the stage to undermine the Federal Reserve monopoly by introducing competition into the monetary system.

Constitutional tender expert Professor William Greene said when people in multiple states actually start using gold and silver instead of Federal Reserve Notes, it would effectively nullify the Federal Reserve and end the federal government’s monopoly on money.

“Over time, as residents of the state use both Federal Reserve notes and silver and gold coins, the fact that the coins hold their value more than Federal Reserve notes do will lead to a “reverse Gresham’s Law” effect, where good money (gold and silver coins) will drive out bad money (Federal Reserve notes). As this happens, a cascade of events can begin to occur, including the flow of real wealth toward the state’s treasury, an influx of banking business from outside of the state – as people in other states carry out their desire to bank with sound money – and an eventual outcry against the use of Federal Reserve notes for any transactions.”

Once things get to that point, Federal Reserve notes would become largely unwanted and irrelevant for ordinary people. Nullifying the Fed on a state by state level is what will get us there.

Now that bitcoin is once again all the rage among investors, both retail and institutional, opinions on its future prices follow a bimodal distribution with a concentration at either extreme and few moderate view inbetween. Which is why this morning’s note from SocGen FX strategist Kit Juckes with interest as it presents one of the more nuanced takes on what may happen next, and if nothing else, we believe he hammers the point with the following observation on how “bitmania” is different from tulipmania:

“Bitcoin is different because even now, most activity is ‘buy to hold’; by people who believe it is the natural competitor to gold as a store of value in a time when central banks are playing footloose and fancy free with fiat money.”

Of course, the real reason behind bitmania – and why it may persist – is simple: it’s all in response to brrrr (which is why we find all the Fed fanboys bashing bitcoin so hilariously absurd).

As to why bitmania will likely have staying power, well, as Juckes concludes, “aAficionados believe that central banks who have turned the monetary tap wide open at the back end of a historic era when a surge in the global labor force, and huge technological change have kept inflation at bay, will be too slow to rein in inflation when these forces fade.”

He is, of course, right with one minor edit: not only will central banks not be able to rein in inflation, but they will welcome it which is also why the world is on the verge of a digital currency revolution where central banks will finally be able to literally print digital money which they can distribute, at their discretion, among the population.

We excerpt from his full note titled “Jay Powell is feeding the (dollar) bears again” below:

Between August and November 1636, just as what is now the Netherlands emerged from a long recession due to the resumption of the country’s war with Spain, an outbreak of the bubonic plague killed an eighth of the population of Haarlem. The boost that gave to incomes is cited as one of the reasons, along with the availability of credit in the country which invented fractional reserve banking, for the madness described as Tulipomania in Mike Dash’s excellent (short) book on the subject.

There will no doubt be comparisons of tulips and Bitcoin in the days/weeks/months ahead. In my mind the tulip mania  became a speculative bubble, rather than an odd but harmless pastime for rich lovers of flowers, when people were buying in the hope of making a quick profit, and were mostly buying on credit. In this regard at least, Bitcoin is different because even now, most activity is “buy to hold” by people who believe it is the natural  competitor to  gold as  a store of value in a time when central banks are playing footloose and fancy free with fiat money. Aficionados believe that central banks who have turned the monetary tap wide open at the back end of a historic era when a surge in the global labor force, and huge technological change have kept inflation at bay, will be too slow to rein in inflation when these forces fade. 

I  have  a  lot  of  sympathy  for  that  view,  and  therefore  for  the  idea  that  gold  will  remain  in demand as long as policy rates remain very low. By the same token, Bitcoin has been around long enough that it probably isn’t going away. I certainly don’t however, have any desire to try to construct  a fancy model to predict how high bitcoin prices might go. I’ll just make the point that if this does become a speculative bubble, it can get pretty wild before it bursts.

Of course, if there are bubbles around, they are being helped by Fed Chairman Jay Powell. The FOMC’s ‘dot-plot’, which I glanced at during half-time  yesterday,  looked  hawkish.  Mr Powell’s comments were anything but. Money’s staying way. Throw in hope that a fiscal package will be forthcoming, that an EU/UK trade deal can be struck now that fish, rather than the level playing field is the main  obstacle, that the recovery Fund is up and running and of course, that vaccine deployment will continue, and the stage is set for the dollar to go on falling. The only problem is that it’s falling too fast. The last Bloomberg FX poll has a high forecast for Q4 2021 of 1.28. Our forecast is 1.27; that’s a 4% move, compared to the 3% the euro has risen in the last month alone.

All of that ensures that bitcoin – and gold – will go much higher, albeit with occasional bloodcurdling crashes.

Mike Green of Logica Capital Advisors joins Real Vision senior editor, Ash Bennington, to share his market outlook as U.S. equities yet again reach all-time highs. Green breaks down the current market structure, looking at how changes to order book depth and inter-asset correlations present investment risks. Green and Bennington discuss commodities, passive investing, and the Fed’s latest FOMC meeting, with Green sharing his outlook on inflation and interest rates. Lastly, Bennington asks Green his views on crypto-assets and particularly Bitcoin, which continues to surge immensely. In the intro, editor Jack Farley jobless reports on today’s jobless claims, the status of U.S. fiscal stimulus, and Tesla’s looming entry into the S&P 500. The paper by Rob Arnott on Tesla, which Jack mentions, can be found here: https://www.researchaffiliates.com/en_us/publications/articles/819-tesl….

Authored by Stephen Green via PJMedia.com,

A pair of gunshot deaths that counted among COVID fatalities have earned the ire of a county coroner in Colorado.

Grand County, in the sparsely-populated (but breathtaking) northwestern quarter of the state, is home to fewer than 15,000 people and has been lucky enough to endure only a handful of deaths related to the Wuhan Virus.

But of those five deaths, County Coroner Brenda Bock says two actually died of gunshot wounds.

Bock sounded furious in her interview with CBS4 News in Denver, and with good reason. Grand County’s economy is heavily reliant on tourism, and as Bock told CBS4, “It’s absurd that they would even put that on there.”

“Would you want to go to a county that has really high death numbers?” she asked, presumably rhetorically.

“Would you want to go visit that county because they are contagious? You know I might get it, and I could die if all of a sudden one county has a high death count. We don’t have it, and we don’t need those numbers inflated.”

Bock told CBS4 that because the victims had tested positive for COVID-19 within 30 days of having been shot by gunfire, the county classified them as “deaths among cases.”

That’s a curious definition, but one required by the national reporting rules created by the Centers for Disease Control and Prevention.

“Deaths among COVID-19 cases” includes people who died with COVID-19, “but COVID-19 may not have been the cause of death listed on the death certificate.”

That’s different from the CDC’s definition of “deaths due to COVID-19.” Those are cases “where COVID-19 is listed as the cause of death or a significant condition contributing to death.”

Let’s put a different spin on those rules and see if we can’t gain a little clarity.

Consider a hypothetical in which your friendly neighborhood VodkaPundit were to get hit by a car while stumbling home from his favorite drinking establishment (heaven forbid!). During my autopsy, it was discovered that I had a small tumor on my liver – because where else would I be likely to get one?

If the CDC were fighting cancer the way it’s fighting the Wuhan Virus, my death would be counted “among” those who died of liver cancer, even though the tumor was small and not yet threatening. Never you mind that what actually killed me was a ’97 Olds Cutlass with that ugly plastic body cladding.

What a terrible way to go, right?

If I’d dodged the Cutlass and gone on to die many years later of liver cancer, my cause of death would be listed as “due” to liver cancer.

The latter is good if you’re trying to keep accurate records. The former is better if you’re trying to keep the public scared and confused about the risk of liver cancer in young people.

But worse than scaring a few tourists away from the lovely Grand Lake Lodge, COVID scaremongering is being used to shutter entire states.

As the official Wuhan Flu death tally rapidly approaches 300,000, we need to pay closer attention to these reporting rules.

The idea that COVID mortality might be overstated – even wildly overstated – is hardly far-fetched. PJ Media’s own Stacey Lennox reported on Wednesday:

One would think in light of these dire predictions and given the horrible toll the response has taken on the economy and young people, the excess deaths due to COVID-19 would be through the roof. But federal data says that does not appear to be the case.

Overall U.S. deaths in 2020 appear to be in line with previous years, according to the CDC’s own data.

Given that people who died “due” to COVID are overwhelmingly either elderly, suffering from an average of 2.6 comorbidities, or both, it isn’t a stretch to conclude that 2020 was the year most were going to die of something.

That’s perhaps a morbid truth, but morbid truths are still truths.

I don’t mean to imply that there’s nothing tragic about this pandemic.

Businesses have shuttered, tens of thousands of them permanently. Educations have been disrupted, jobs lost, and various state governors engaging in acts of tyranny that in saner times would have them driven from office — or worse. My 14-year-old son kind-of/sort-of started his freshman year this autumn but confided in his Mom a couple of weeks ago, “I’ve been in high school for weeks and I haven’t made a single new friend.”

That last item is about the least-damning thing you’ll read about what this shutdown year has done to schoolkids.

And when someone dies of a self-inflicted gunshot wound, taking their own life out of COVID-shutdown despair, the CDC doesn’t list that as even “among” COVID deaths.

The Wuhan pandemic has certainly been “among” the causes of many tragedies, but for the most part, our suffering has been self-inflicted.

Former Goldman Sachs CFO Marty Chavez thinks that income redistribution via Universal Basic Income (UBI) is the only way to stave off revolution as the wealth gap continues to increase.

In an interview with The Business of Business, host Gregory Ugwi asked Chavez if he agrees with Rep. Alexandria Ocasio-Cortez (D-NY), who says “there should be no billionaires in the US as long as there are poor families,” adding that venture capitalist Paul Graham says that income inequality is a “natural part of capitalism, and a sign that the process is working.”

Chavez, a Democrat donor (most recently Pete Buttigieg’s presidential bid), agreed that the income gap is a consequence of capitalism, but said “at the same time, it isn’t an inevitable feature of capitalism that the inequality be as extreme as it’s getting. There have been long periods in American history where there was always inequality – but it wasn’t this kind of inequality.”

He also isn’t a fan of AOC, saying “I am not in AOC’s camp – at all. I didn’t vote for her, I wouldn’t vote for her. I hear her, and she’s just not saying anything that makes any sense to me.”

“At the same time, I’m a big proponent of a universal basic income.

My personal view is that if you’re just being pragmatic and looking at inequality – and not thinking about some abstract concept of justice – you don’t want the inequality to be so extreme that it leads to revolution. So you ought to be prepared to pay to decrease that probability.

This is what I say to, you know, friends who you might call ‘oligarchs,’ right? Why it would make sense for everybody to have some baseline income and why we should all pay for it.”

Watch:

 

As tens of thousands of doses of the new Pfizer COVID-19 vaccine make their way across the country, some health workers – first on the list to receive the two-stage jab – are leery of the emerging treatment which mainstream pundits warned would take a ‘miracle‘ to produce before the end of the year.

And while public concerns over the vaccine have eased compared to polling conducted before the November election, a not-insignificant number of health workers are unwilling to take the shot. Perhaps they’re concerned about taking the fastest vaccine developed in Western history, developed to treat a mysterious new virus which primarily kills the elderly (though can have lasting effects on people of all ages save for children).

As Bloomberg notes, the initial vaccines have few serious side effects (aside from a handful of serious allergic reactions), though nobody knows what long-term effects it has, if any. For example, nobody can possibly know what it does to a gestating fetus for nine months, or whether it affects fertility – yet, the American College of Obstetricians and Gynecologists recommend that pregnant women take the vaccine.

At one Chicago hospital where the city’s first COVID-19 vaccine was administered on Tuesday, 40% of the staff said in a survey earlier this month that they would not take it.

Sherrie Burch, 56, a ward clerk at Loretto, is baffled by how quickly the Covid-19 vaccine was developed, given how long medical developments typically take. And that makes her nervous. “It just happened too fast for me,” Burch said, adding that her children, grandchildren and 76-year-old mother aren’t planning to get it either. “It’s the fear of the unknown.”

Burch wants more details about the vaccine’s research and longer-term side effects. She plans to wait at least a couple of months to see how co-workers respond to the shot. Until then, she’ll keep masking, distancing and hand washing.

Some nurses, respiratory therapists and technicians at Loretto also are opting out, said Nikhila Juvvadi, the hospital’s chief clinical officer who was the first person to administer the vaccine in Chicago. At a staff town-hall meeting on Wednesday, she explained the science of how the mRNA Covid-19 vaccine works. –Bloomberg

In Maine, 40% of staff and 30% of residents at the state’s larger nursing homes won’t take the jab, according to an “informal discussion” conducted by the Maine Health Care Association.

“Without official polling, it’s hard to know how accurate a picture this paints, and we fully expect these percentages to increase with greater education and awareness,” said the organization’s director of communications, Nadine Grosso. “Ultimately, we know that vaccination is key to safely reopening our long term care facilities.”

And if these are all the people who will admit to refusing the vaccine, how many lied and said they will?

EMTs are also at the front of the line for the vaccine, yet approximately 30% of those who travel with New York firefighters are resistant to getting it, according to Annthony Almojera, a lieutenant paramedic who’s vice president of FDNY’s EMS Officers Union Local 3631.

“Who wants to be a guinea pig?” Almojera says is the biggest concern, with many citing the speed of the vaccine as a major hurdle.  He says he tries to calm fears by telling them “It’s been worked on 24 hours a day for six or seven months with almost unlimited resources.”

Still, some remain unpersuaded. Jonathan Damato, 41, a New York City paramedic for 21 years, is not an anti-vaxxer. He gets an annual flu shot, and he trusts the life-saving potential of vaccines against measles, mumps, polio. His station does about 50 or 60 Covid ambulance runs a week — people presenting high fevers and shortness of breath.

“I know the virus is real,” said Damato, who has a 4-year-old son with health issues. But “until I see that it’s actually safe for myself or my kids to take, I’m not going to take it.” –Bloomberg

In short, nobody wants to be a guinea pig.

Following last week’s Pfizer approval, this one just seems a little anti-climactic and yet it is notable as another COVID vaccine is now ready to get final approval by The FDA for Emergency Use Authorization.

 U.S. Food and Drug Administration advisory panel voted Thursday to endorse Moderna’s coronavirus vaccine, clearing the way for FDA leaders to authorize emergency mass distribution amid an ongoing surge of COVID-19 cases across the country.

The committee was charged with voting on the following question:

“Based on the totality of scientific evidence available, do the benefits of the Moderna COVID-19 Vaccine outweigh its risk for use in individuals 18 years of age and older?”

The vote was 20-0. One committee member abstained. 

As Fox News reports, the highly anticipated meeting included members of the FDA’s Center for Biologics Evaluation and Research advisory committee, outside vaccine experts and Moderna representatives.

FDA committee’s review of Moderna’s coronavirus vaccine emergency use authorization application found “no specific safety concerns” in subgroup analyses by age, race, ethnicity, medical comorbidities, or prior SARS-CoV-2 infection, potentially paving the way for a second COVID-19 jab to enter the scene.

The panel also found that the vaccine reduced the risk of confirmed COVID-19 – including severe cases – occurring at least 14 days after the second dose.

Not unlike Pfizer and BioNTech’s vaccine, the Moderna jab did elicit non-serious adverse reactions such as pain at the injection site, fatigue, headache, muscle pain, joint pain and chills. The reactions were characterized as generally mild to moderate.

The FDA did consider three serious adverse reactions as related to the vaccine, including nausea and vomiting, and facial swelling. An incident of Bell’s palsy also occurred in a vaccine recipient, “for which a causal relationship to vaccination cannot be concluded at this time.”

The FDA panel’s vote to approve the company’s EUA was expected.

Upon formal FDA approval, which would mark the first such approval for Moderna, Americans could see an initial 6 million doses distributed next week.

With the trillions in fake money being printed monthly by the Fed, major investment banks gaming entire indices with gamma squeezes and what seems like a neverending barrage of millions of dollars of suspicious call buying ahead of – well, basically every major M&A transaction we’ve seen over the last decade – the SEC wants you to know they are on the case and out to fry the big fish.

And the big fish the agency has fried, of course, is some corporate controller schmuck who made $296,000 insider trading in advance of his own company’s acquisition. 

According to an SEC release put out on Friday, the agency charged “the former Corporate Controller of CEB Inc. and his brother-in-law with insider trading” for trading ahead of the company’s $2.6 billion acquisition. 

Hilariously, the corporate controller and his brother in law “made profits of more than $243,000 and $53,000” after taking “aggressive steps” to trade ahead of the news, including liquidating an IRA, maxing out a line of credit and taking a loan out on a car to fund the purchases. 

The complaint alleges that based on the information tipped by Wright, Clark purchased highly speculative, out-of-the-money call options and directed his son to purchase the same options in the son’s account. As the date of the announcement approached, Clark allegedly took aggressive steps to fund purchases of additional out-of-the-money CEB options, including liquidating his wife’s IRA, nearly maxing out a line of credit and taking out a loan on his car. The options Clark allegedly purchased were so speculative that Clark – alone or with his son – were the only people to buy those options on all but one of the days they traded. As alleged, Clark and his son made profits of more than $243,000 and $53,000, respectively.

As most traders who watch options flow daily seem to understand, this “bust” is a very small drop in the bucket of the obvious illegal activity that takes place what seems like daily in the options market:

This guy had no idea how to buy options, by the sound of it.

— Scooter (@JamesSantelli1) December 12, 2020

Is it time to worry about food inflation?

The reason this has suddenly become a hot topic is because while overall inflation remains subdued (we will spare a discussion here of why the CPI is purposefully distorted to stay as low as possible – readers can catch up here, here and here), food inflation has been on a tear in recent months. In fact, it has gotten so high that earlier this week Goldman published a report looking at “The Recent Spike In Food Inflation”, in which it noted that “in recent months, inflation has risen and surprised to the upside across a number of major EM economies (e.g. Turkey, South Africa, India, Brazil andRussia).” According to Goldman, one of the main drivers of these increases has been higher food inflation, which has coincided with a sharp increase in the price of some key agricultural commodities (e.g. grains, oils and soybeans).”

Yet despite admitting there is a clear food inflation problem, Goldman is quick to brush it off, making the following arguments:

• Outside of major agricultural price shocks, the cross-country correlation in food inflation is generally weak, suggesting that food inflation is more typically driven by local rather than global factors. In addition, inflation in high-yield EMs is typically more sensitive to global agricultural commodity prices than in low-yielders, because food represents are latively large share of CPI baskets in low-income economies.
• Although the recent rise in food price inflation has been material in some EM economies, food inflation had previously been on a downward trend this year inmost EMs, and has generally exhibited much less volatility over the past 10 years than was previously the case. Similarly, while the recent rise in global agricultural commodity prices has been significant in percentage terms, the increase has been much more limited than the sharp swings observed between 2006-2012,and it follows a prolonged period in which agricultural prices had been relatively weak.

In short, Goldman dismisses the risk of surging food inflation especially in emerging markets, because “given the limited size of the shock to date, and with other factors (such as spare capacity) weighing on EM inflation, the recent rise in agricultural commodity prices would need to extend quite a bit further for it to have a significant and lasting effect on inflation and monetary policy across the majority of EMs.“

One wonders if Goldman was just as dismissive during the food price surge observed in late 2010 that ultimately culminated in the Arab Spring of early 2011. As the Guardian reminds us:

“A decade ago this week, a young fruit seller called Mohammed Bouazizi set himself alight outside the provincial headquarters of his home town in Tunisia, in protest against local police officials who had seized his cart and produce.”

It is this backdrop that brings us a far more concerning note published this morning from everyone’s favorite permabear, SocGen’s Albert Edwards, who unlike Goldman is starting to worry about food inflation. A lot.

As Edwards explains, for much of the past decade he – and other Fed skeptics – have railed about the distorting impact of QE on asset prices. And aside from capital markets where the Fed’s intervention has spawned a record wealth divide leading to unprecedented political and social polarization, perhaps the most disturbing episode of such distortion was the abovementioned explosion of food prices that began towards the end of 2010. According to Edwards, many economists – this website included – believe the Fed’s QE2 was the primary cause for the 2010-11 bubble in food prices which contributed to the social unrest and ensuing revolutions in many Arab countries.

This is a problem because in a time when central banks are injecting a record $1.4 billion in liquidity every hour, and when most economists’ attention is now focused on the impact of the Fed’s QE on buoyant equity and industrial commodity prices, Albert says that “we should also watch the unfolding surge in food prices very closely indeed – and with trepidation.“

The reason for that is again what happened in early 2011 in Tunisia: That event marked the start of a chain reaction of social unrest around the Middle East and elsewhere that toppled governments and became known as the Arab Spring, Edwards writes and adds that “although the narrative of these revolutions had its origins in longstanding grievances and a thirst for democracy, many economists identified rocketing global food prices from the end of 2010 as the trigger. (T’was always so: certainly, higher food prices contributed to both the French and Russian revolutions, and to the 1989 unrest in China.)”

As for whether central banks were responsible for these revolutionary dominoes, Edwards is a bit more nuanced, writing that while they certainly spawned much of the asset reflation observed in late 2010, “the truth is that central banks have no control over which financial bubbles will ultimately emerge as they spray QE into financial markets.” It just so happens that food is one of them with alarming periodicity.

Case in point: bitcoin, which is soaring precisely because institutions have finally realized that central banks injecting 0.66% of GDP into capital markets every month will lift everything, even digital tokens with no intrinsic value. It will certainly lift food prices too.

So going back to the facts, Edwards writes that “one thing you may have missed recently is that the UN’s Food and Agriculture Organization’s (FAO) widely followed food price index (the basket measures prices for oilseeds, dairy products, meat and sugar)” which as shown above, has – once again – been surging over the last few months. As noted previously, the FAO food index rose for a sixth month running in November, on pace to hit a six-year high, with Edwards noting that “annual inflation in cereals reached 20%, the highest annual rise since mid-2011 when the Arab Spring was in full flow! (see chart below).”

Edwards then doubles down on his makes his feelings clear on who ultimately was to blame for the global tidal wave in food inflation back in 2011: “Despite Ben Bernanke’s denials that the Fed’s QE policies caused rampant food price inflation in 2011 (link), many economists such as myself believe that was absolutely the case.”

Next, Edwards expands on the superficial Goldman analysis, and points out that the effect of higher food prices tends to be much greater for EM countries that are 1) large net importers of food, and 2) where households spend a greater percentage of their income on food (ie they have a much larger weighting of food in their CPI basket).

What, however, makes the current episode of surging food prices even worse is that it comes in the aftermath of the global covid shock, which has had a crushing impact on the well-being of hundreds of millions of people around the globe. In fact, as the WSJ reports, surging food prices is not just an EM issue.

Edwards summarizes his concerns best with the following statement: “even in the richest country in the world, food poverty has become a real problem during this pandemic.”

But wait, because the real inflation may be just starting, and it has to do with the “beautiful reflation” trade that everyone is convinced is coming. As Edwards notes, “now that a vaccine has arrived, investors are revelling in the cyclical beneficiaries of policy stimulus such as equity markets overall, value stocks, a steepening yield curve, and industrial metals. Certainly, the latter has risen entirely in line with the recovery in the global PMI.”

One sector that would certainly benefit from the return of inflation is commodities (such as food). As we showed earlier this week, while commodities have been in a secular bear market for a long while now, the following charts from Crescat Capital suggest that we could be in for a powerful reversal. Edwards agrees, noting that he “and many others believe that the end of the Ice Age and transition to the Great Melt will be extremely beneficial for commodities.”

And as industrial commodities break upwards fuelled by the double-whammy of a cyclical recovery and extremely loose monetary policies worldwide, Edwards urges us to “keep a very close eye as to whether we see a repeat of the 2010/11 surge in food prices” because “on the 10th anniversary of the start of the Arab Spring, and with poverty having already been made much worse by the pandemic, another food price bubble could well be the straw to break the very angry camel’s back.”