The Food Train Wreck

Comments in PURPLE.

Encik Wan said...

What do you suggest? Cut liquidity to curtail demands? Speed of production of commodities cannot match rate of increase in demands. You cannot ask emerging countries to go back to old days, right?

The biggest problem, which many are still not aware, is that unlike the subprime crisis and the credit implosion, a food crisis cannot be solved or minimised by pumping liquidity or having more bailouts. You cannot just plant more rice or coffee overnight. Hence the headline: its a train wreck waiting to happen. It will happen. There is nothing much we can do to stop it. How's that for being optimistic?

Wai Kit said...

question is, what's the best way to position our portfolio during inflation environment? invest in gold, palm oil, stocks related to food production, O&G etc?

Gold.

Smart Money said...

What's your thoughts on the effects of inflation on property prices? Are they sure to increase in value? What's the effect of restrictive monetary policy on the property values? Do rentals go up during inflation? The effects on equities are quite predictable. But real estate?

Inflation = Higher interest rates = Lower affordability. Hence spiraling food inflation does not necessarily equate to corresponding property price jumps. Even in those supposedly good sectors with positive black swans (food manufacturers, plantations), their earnings jump will be regarded as an anomaly and would not get a long term hike in PER valuation. What can the governments do? Put more funds into subsidy. This is a case of people getting richer but clamouring for reduced supply. Prices get bidded higher. Unlike oil which affects companies a lot more, food prices affects a much larger crowd. We all will have to live with much higher food prices, not to mention fuel prices. Governments will have to pay higher salaries for civil servants. Countries like Malaysia will be net beneficiaries as we have oil royalties and plantations to help cushion the blows. It will hit resource poor nations a lot harder. Developing economies with high poverty levels will be hit especially hard. Even the aid in USD have depleted in value and can only buy a lot less of things costing a lot more.

A looming food crisis = spiraling inflation = restrictive market policies = higher interest rates to curb spending = not so good for equities.

A looming food crisis = Mounting government subsidy = Controlled prices break loose = Social unrest & riots = not good for equities.

p/s photo: Niki Chow