Time to Stop and (NOT) Panic
The sky is not falling. It just appears so because of media bias.
Yahoo! Finance, while an otherwise trustworthy source of good personal finance tomes, has sunk to a low by printing and then posting on their front page over the weekend, a story preaching the stockpiling of food as a hedge against inflation. The author goes so far as to say that food stores will make better returns than bank accounts in the near future.
Stocking up on food may not replace your long-term investments, but it may make a sensible home for some of your shorter-term cash. Do the math. If you keep your standby cash in a money-market fund you’ll be lucky to get a 2.5% interest rate.
Meanwhile, Costco and Sam’s Club have been restricting purchases of rice to four 20 lbs bags per customer. That’s eighty pounds of rice per customer per trip.
The two biggest U.S. warehouse retail chains are limiting how much rice customers can buy because of what Sam’s Club, a division of Wal-Mart Stores Inc., called on Wednesday “recent supply and demand trends.” The broader chain of Wal-Mart stores has no plans to limit food purchases, however. (source: Associated Press)
Let’s be clear, there is no shortage here in the USofA. Food remains in stock at all local grocery stores here in New Jersey and I have a good hunch that would be the case elsewhere. I went to the store just yesterday and bought a small bag of rice, because we actually were running low in our pantry, not to hedge against the economy.
We seem to have an overabundance of idiots who would rather telegraph the next panic than provide sound financial advice. Food is a horrible place for short term cash. Short term cash should be liquid. You can’t get your car repaired by offering your local mechanic a hefty bag of rice.
There has always been food shortages in under developed countries. Thats one of the many reasons I am glad I live in the United States. Prices may rise, but food will always be on the shelf. That is, unless hoarders get to the store before me. But that has nothing to do with an actual shortage.
In the news are plenty of opinion articles and blogs about the current commodities crisis. Food inflation running out of control with no end in sight. Crude oil continuing to rise spelling the end of the modern consumer. This makes me wonder if the recent price spike has roots in the stock market correction we have had since last September. It seems to me to be a bubble in the making.
Consumer confidence has taken major hits in the last several months. The stock market has taken a bad dive as well. It would seem reasonable to me that institutional and speculative investors would look for higher returns for their clients. When the technology bubble burst, investors plunged their dollars into other lucrative investments. Real estate was top on their lists and that momentum culminated in the recent housing and liquidity crisis we have now. With another bubble in its death knell, I would not be surprised if price increases in commodities across the board are a result of heavy buying of futures contracts on the mercantile exchange in pursuit of the hot investment du jour.
Even if my hunch is true, it means very little to the family drowning in consumer credit and living paycheck to paycheck. I guess that means that being frugal, living within your means, and investing for the future isn’t such a bad idea after all. Those of us out there with margin in our budget will be able to weather the storm.