US Rising Food Prices: Analyzing FOMO & Other Market Dynamics

March 28, 2024

Navigating US Rising Food Prices: Unraveling FOMO and More

We’re expanding on numerous comments from the General Market Commentary section, delving deeper into why the Resource Remobilisation War will escalate. It seems the crowd believes that derivatives and speculative instruments can sustain (feed) them, overlooking the reality that tangible resources are the true backbone. Meanwhile, the United States is experiencing a decline in critical areas, eventually undermining its global influence. For now, the US dollar’s strength continues to support its stock markets, but this projection of Power is fading rapidly.

Huawei’s remarkable achievement despite facing severe sanctions is a prominent indication of this waning influence. Despite being heavily sanctioned, China, and consequently, Huawei, outperformed every other company and country globally regarding patents filed.

In 2023, Huawei, Samsung, and Qualcomm emerged as the leading international patent filers, with Huawei surpassing its competitors despite facing significant challenges from US sanctions. Chinese companies dominated the global patent landscape, with China leading in total patent filings. The World Intellectual Property Organization (WIPO) reported 272,600 international patent applications, with China accounting for the highest number at 69,610, followed by the United States with 58,823 filings. The WIPO’s Patent Cooperation Treaty (PCT) system determines patent applications filed by entities seeking global protection for their inventions. While WIPO rankings provide valuable insights, they may not encompass all patent applications filed in every country. Full Story

The Federal Reserve is caught between a relentless “machine gun” and the formidable firepower of a “high-powered cannon.”On one side, they cannot afford to raise interest rates due to the staggering trillion-dollar debt payments already burdening the economy. Conversely, lowering rates too swiftly risks alienating potential buyers, leaving the Fed with no choice but to overtly monetise the debt, a path loaded with dire consequences. While they are monetising the debt, it’s being done covertly, veiled from public scrutiny. This situation bears a striking resemblance to the lavish atmosphere aboard the Titanic before its fateful end. Amidst the festivities and music, the impending disaster casts a foreboding shadow. Put it differently, the stock market is experiencing a turbo-charged repeat of its 1999 scenario. It’s on a rapid upward trend, akin to a party in full swing. However, this party won’t end with fireworks, which everyone enjoys. Instead, it’s signalling an impending storm.

Today’s investors, motivated by a ‘go big or go home’ ethos, frequently overlook the foundational significance of tangible resources, favouring derivatives and financial instruments instead. However, these hard-core assets sustain the world, not stocks or cryptocurrencies. Neither the stock market nor Bitcoin can feed or maintain you. Meanwhile, the United States is swiftly losing its foothold in crucial sectors such as food production, manufacturing quality (as evidenced by a sharp and alarming decline of the former leader Boeing), resource production (despite ample resources, production capacity remains stagnant), electricity output, nuclear innovation, STEM graduates, and more.

Understanding the Paradox: US Rising Food Prices Amid Economic Growth

Consider this: If the economy is thriving, why are many people in the USA resorting to Buy Now Pay Later (BNPL) schemes to buy food? Take a moment to ponder this. While such options might be used for nonessential items, relying on them for essentials like food suggests underlying issues.

Last year, approximately 15 million consumers, representing 6.5% of the US population, reported using BNPL instalment loans to cover groceries or handle their weekly food expenses, as research from PYMNTS Intelligence revealed. About 5.4% of households utilising BNPL for grocery purchases among this group were classified as low-income.

While food prices slightly moderated in February, they still stood at 22.3% higher than in 2020. This cost increase has compelled households across all income brackets to adjust. The question that arises is: How much has the average salary risen over that period:

The average hourly wage for all private sector workers has only increased by 17.1% since the pandemic, trailing behind the 23.5% surge in food prices over the same period. In contrast, low-wage workers in the leisure and hospitality sector have experienced better wage growth, with average hourly wages rising by 25.2%.

However, real wages (adjusted for inflation) have remained stagnant for most Americans for decades. Wage gains have disproportionately favoured the highest earners, with real wages for the top 10% rising by 15.7% since 2000, compared to just 3-4% for the bottom quarter.

For instance, half of consumers earning over $100,000 reported reducing nonessential spending at the grocery store. Similarly, over 60% of those earning under $100,000 stated they had to cut back on spending due to the elevated food costs. Full story

The Dangers of Rising Food Prices

Rising food prices pose a significant threat to the US economy and the well-being of its citizens. As food costs continue to climb, outpacing wage growth for many Americans, more households are struggling to afford necessities. Low-income families are especially vulnerable, as they spend much of their budgets on essentials like food and gas.

This trend could hinder the Federal Reserve’s efforts to lower inflation rates. If food prices remain stubbornly high, the Fed may take more aggressive action, such as raising interest rates more rapidly. However, this is a delicate balancing act, as higher rates could slow economic growth and negatively impact stock prices.

Moreover, persistent food inflation could contribute to a wage-price spiral, where workers demand higher wages to keep up with rising costs, leading to further price increases. This self-reinforcing cycle could make inflation more entrenched and difficult to control.

In conclusion, rising food prices in the US pose a critical challenge. This trend threatens households’ financial stability and complicates the Federal Reserve’s efforts to tame inflation without disrupting economic growth. If left unchecked, higher food costs could contribute to a broader inflationary spiral, potentially undermining the stock market’s recent uptrend and the overall health of the US economy. Policymakers must carefully navigate this complex landscape, balancing the need to control inflation with the imperative to support vulnerable populations and maintain economic stability.

Conclusion:

The United States faces a critical challenge in rising food prices, which have increased by 22.3% since 2020, outpacing the 17.1% growth in average hourly wages. This trend disproportionately affects low-income households, with 5.4% relying on Buy Now Pay Later (BNPL) schemes to cover grocery expenses. The Federal Reserve must navigate the delicate balance between controlling inflation and maintaining economic growth, as aggressive rate hikes could slow the economy and disrupt the stock market’s uptrend.

As Charlie Munger emphasizes, focusing on the fundamentals and understanding the underlying reality of the situation is crucial. The US is losing ground in critical sectors such as food production, manufacturing quality, and resource production, which could undermine its global influence. Peter Lynch’s approach suggests that investors should be cautious and consider the potential impact of persistent inflation on the economy and individual companies.

To address this challenge, policymakers must prioritize measures that support vulnerable populations, such as targeted assistance programs and initiatives to boost wage growth. Simultaneously, the Federal Reserve should maintain a data-driven approach, carefully monitoring inflation indicators and adjusting monetary policy to prevent a wage-price spiral. The US can work towards a more stable and equitable economic future by addressing the root causes of rising food prices and implementing targeted solutions.