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Fisher Investments Analyst Book Review: Food Politics

June 24, 2011 Leave a comment

Food Politics: What Everyone Needs to Know — Robert Paarlberg

For my job at Fisher Investments, I’m out on the road quite a bit each year, speaking to investors from all over the country. One of the things that used to amaze to me when I started, but doesn’t anymore, is that people everywhere pretty much ask the same questions.

Oddly though (because at Fisher Investments, I deal in stock markets for the most part), I get asked about food a lot. Everything from the supply of it (farming), to the price of it (the balance between supply and demand along with myriad government distortions), to the demand of it (population growth, poverty and income, and nutrition and obesity). Of course, a good bit of it is relevant to investing—food makes a difference in inflation, economic growth, commodities prices, politics, and the earnings of many very large publicly traded corporations.

On that note, I recommend Robert Paarlberg’s Food Politics: What Everyone Needs to Know for a few reasons.

Paarlberg approaches the subject as a political issue. Which is right. It’s not that food has become “politicized,” so much as food itself has always been a natural political issue. What I mean is, how a nation or society views food, what we do with it, how we regulate it—is about as old as civilization itself. Semantics aside, viewing food as politics allows Paarlberg to approach the subject with as much objectivity as is likely possible—recognizing that activists, regulators, farmers and their interest groups, corporations, even consumers, all have ideological bents to this issue and their maneuvering among each other is what dictates what food is produced, and at what price. Said differently, understanding the economics of food is barely half the battle in understanding how its priced, who gets it, and why.

This also means that people involved in food politics will probably hate this book equally, which is to the acute advantage of the reader looking for pragmatism on these issues. The organic-sustainable types will feel undermined and short-shrifted; the farmers and corporations (from companies like ArcherDanielsMidland to McDonald’s) will also feel vaguely attacked.

Second, this book is short, and written in a style allowing you to skip around as you like. Much like Steve Forbes’ excellent How Capitalism Will Save Us from last year, Paarlberg’s book takes one topic a chapter (like obesity) and then asks a series of questions tied to that issue and answers them in pithy fashion. This is a good approach because most will only want to see the basics of these issues laid out without all the jargon that can go with them.

The “what everyone needs to know” part of the title is maybe a tad much. This book isn’t definitive in the informational or authoritative sense. (But then again, what is?)  But it’s as good an introduction into thinking about the real political undercurrents of food as I’ve encountered, and will at least set the table for better thinking on this issue outside of what you hear at farmer’s markets or McDonald’s drive thrus or nightly news bloviating.

 

Money Is but a Veil

June 3, 2011 Leave a comment

Another must read piece from John Tamny at RealClearMarkets yesterday:

Why Robert Mundell Is Wrong About the Dollar/Euro — John Tamny

A few choice quotes:

Money in the modern world is a paper concept lacking any kind of definition, so for anyone to assume that inflation and deflation can be whipped through the simple act of pegging currencies to one another is to redefine inflation and deflation altogether.

Money is but a veil, and to assume that fixed exchange rates among paper currencies lacking definition would erase inflation or deflation is the height of naivete.

In my experience, financial professionals and civilians alike continually miss the concept that money is an “idea”, it is not a thing. Human psychology is so strong, so stable and consistent, that an idea like money seems and feels real—we all “believe” in it. But if we all one day just decided to stop believing in money, then money would cease to exist.

Inflation Isn’t Necessarily Higher Prices

April 6, 2011 Leave a comment

 I hear a couple arguments about inflation and oil prices lately.

  1.  Higher oil prices force folks to spend more money on gasoline, and therefore less money on other things, which hurts their disposable income.
  2. Higher oil means higher inflation.

It’s very unlikely both these statements can be simultaneously true. Yet people believe it.

The reason is that inflation is a function of too much money chasing too few goods. Said another way, inflation is a monetary phenomenon. So, if it’s the case that higher oil prices are impinging the ability to spend on other things, that probably means it’s not inflationary because it’s not a case of too much money chasing the oil to higher prices—it couldn’t be if folks have to cut back on other things to buy it. Instead, higher prices in stuff like oil and agricultural goods is due to tight supply. Supply is not an inflationary thing.

Note that housing, electronics, and a host of other things are falling in price—largely offsetting price increases in individual things like commodities at the moment, keeping overall inflation low. Inflation isn’t always a matter simply of higher prices.

Food for Thought: Think Relative Expectations

February 3, 2011 Leave a comment

One thing I know, the world is expecting ever higher food and commodity prices. You can basically pick up any periodical these days and read something about it. Here’s a couple recent examples:

Inflation Is Turning Breakfast into a Luxury – Keith McCullough, Fortune
How to Cash In on Commodity Inflation – Daniel Dicker, TheStreet.com

Maybe you agree with these views. But what matters for investing is what you believe will happen relative to current expectations. In this case, the question is will commodities/food prices come in higher or lower than the consensus view? Because the consensus view (particularly stuff as broadly aired as Fortune and TheStreet.com) should already be mostly reflected in share prices. My experience is that food supply is more adaptable than people usually believe/extrapolate, which argues that a surprise in higher food supply is more likely than many appreciate today. But whichever way you go, note that to make a bullish bet on this issue means you think prices will be even higher than soaring expectations. Maybe it’ll happen—but step with caution. It’s not as easy as simply agreeing with the consensus view.

Another example: Refiners have had a heck of a run recently. Should you get in? A recent Bloomberg headline reads: World Diesel Demand Makes Refiner ‘Diamond Age’: Energy Markets. Will results for refiners come in even higher than “diamond age” expectations? Maybe, maybe not. But that’s the question an investor faces.

Lastly, a brief non-Investing tangent: There’s been a tumult of books and essays lately released about how modern media is killing/skewing/altering traditional books and how that changes the way our minds work. David Shields’ new book, Reality Hunger, is not only a good meditation on those subjects, it’s also an experiment in form. The book makes its arguments in little prose bites, none of them more than a page or so long. It’s staccato and sometimes jarring, but there’s also a certain kind of rhythm to it that makes it flow nicely. What’s most refreshing about Shields’ work is that it allows the form of books to morph into how minds are working these days as opposed to arguing whether long form books are becoming obsolete. This is a much better way to meditate on the issue than to lament over the fact that few people read really long books any longer.

Global Trade—Nearly Back to Pre-Recession Highs

September 17, 2010 Leave a comment

I was thinking back to about this time last year, and recalling how many believed galloping inflation would be overtaking us by now. It hasn’t. Also, about a year ago, many believed—and this is a part of the New Great Depression narrative that today’s on its last legs—that we’d have all sorts of renewed trade wars, leading to the end of this most recent wave of globalization, and thus another reason for persistent economic stagnation. Surely, we didn’t read many who believed global trade would be a major reason for better than expected growth in 2010, as has been the case. From page A1 of the 9/13 Wall Street Journal:

World trade has come roaring back. The total volume of global imports and exports fell 21% between April 2008 and May 2009, the largest decline since the 1930s. By this June, trade was back to within 2% of its old peak. The collapse and rebound in trade played an important role in the global recession and recovery; now it may be the key to how strongly the global economy can grow.

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