The talk today is of the subtle but significant shift in the FOMC in regards to another round of Quantitative Easing or QE. It appears the formerly hawkish dissenters from this madness have been brought in to heel with the Fed perhaps ramping up expecatations that they will act in some form as conditions worsen in Europe.
Signals are still unclear and there is a lot of conflicting information swirling in the financial air which is leading to further instability and volatility in our financial markets.
I find it less than honest that those advocating another dose of financial morphine into the system are pointing to the lack of inflation as a signal that the Fed could engage in further money creation without unduly impacting prices in general. My response to this is "Bullsh_t".
Take a look at the following charts of the two basic meat sources, cattle and hogs. The first is of April 2012 cattle. Look at what has happened to the price of cattle. While this is obviously terrific news for cattle ranchers, it is a signficant foreteller of what is going to happen to the price of beef next year. As a matter of fact it has already happened with wholesale beef prices rising to very lofty levels.
The latter is of April 2012 Lean Hogs. That is a reflection of where pork prices are headed next year.
Can anyone with an unbiased mind look at either of these charts and tell me that the markets are not expecting meat prices to rise next year?
Some may suggest that consumers will not feel the impact because they could switch to chicken. A substitution is no doubt realistic but the problem is that the rising price of both beef and pork will lead to increasing demand for chicken which will pull it higher as well (and this does not take into account any fall off in broiler production due to the previous impact of rising feed prices).
In summary - the Fed created QE1 and QE2 and in the process helped to shove feed prices higher. That sent the WRONG signal to cattle and hog producers who then cut back their herds or did not actively seek to increase their size. This occured at the same time that the US Dollar was falling and creating a type of fire sale on US produced beef and pork which led to a surge in export-related demand. The result - US consumers are the ones who will feel the impact of this in the form of higher protein prices in the upcoming year. While I am happy for my friends in the cattle and hog business who work long and hard hours, I am extremely displeased to sit here and watch my protein sources move inexorably higher realizing that some of these cost increases did not have to occur but were rather man-made.
And this my friend is how the Federal Reserve and its money creation programs impacts every segment of society even down to the most basic needs of food. Remember this when you hear more chatter about further QE coming. By the time they finish with us, a porkchop will be $9.99/pound. But what will that matter - the stock market will be moving higher so everyone will feel wealthy and will not mind paying up, will they?
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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