Time to Hoard Food - Wall Street Journal

No this is not a joke. Its the theme we have discussed before of appearance versus reality. The cognitive dissonance between the stated inflation rates and rates of interest paid on savings, versus the actual supply of tangible commodities and the price inflation with wage stagnation people are experiencing in the world of reality.

Things are getting a little crazy out there aren't they? Why is the media trying to foment a food panic? That's clearly where a lot of recent media stories are going. Does Iran have rice? Is it time to annex Canada? Shock and awe on the people? One can only wonder what wicked thing is coming our way.

R.O.I.
By BRETT ARENDS

Load Up the Pantry
April 21, 2008 6:47 p.m.
Wall Street Journal

I don't want to alarm anybody, but maybe it's time for Americans to start stockpiling food.

No, this is not a drill.

You've seen the TV footage of food riots in parts of the developing world. Yes, they're a long way away from the U.S. But most foodstuffs operate in a global market. When the cost of wheat soars in Asia, it will do the same here.

Reality: Food prices are already rising here much faster than the returns you are likely to get from keeping your money in a bank or money-market fund. And there are very good reasons to believe prices on the shelves are about to start rising a lot faster.

"Load up the pantry," says Manu Daftary, one of Wall Street's top investors and the manager of the Quaker Strategic Growth mutual fund. "I think prices are going higher. People are too complacent. They think it isn't going to happen here. But I don't know how the food companies can absorb higher costs." (Full disclosure: I am an investor in Quaker Strategic)

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. Even the best one-year certificate of deposit you can find is only going to pay you about 4.1%, according to Bankrate.com. And those yields are before tax.

Meanwhile the most recent government data shows food inflation for the average American household is now running at 4.5% a year.

And some prices are rising even more quickly. The latest data show cereal prices rising by more than 8% a year. Both flour and rice are up more than 13%. Milk, cheese, bananas and even peanut butter: They're all up by more than 10%. Eggs have rocketed up 30% in a year. Ground beef prices are up 4.8% and chicken by 5.4%.

These are trends that have been in place for some time.

And if you are hoping they will pass, here's the bad news: They may actually accelerate.

The reason? The prices of many underlying raw materials have risen much more quickly still. Wheat prices, for example, have roughly tripled in the past three years.

Sooner or later, the food companies are going to have to pass those costs on. Kraft saw its raw material costs soar by about $1.25 billion last year, squeezing profit margins. The company recently warned that higher prices are here to stay. Last month the chief executive of General Mills, Kendall Powell, made a similar point.

The main reason for rising prices, of course, is the surge in demand from China and India. Hundreds of millions of people are joining the middle class each year, and that means they want to eat more and better food.

A secondary reason has been the growing demand for ethanol as a fuel additive. That's soaking up some of the corn supply.

You can't easily stock up on perishables like eggs or milk. But other products will keep. Among them: Dried pasta, rice, cereals, and cans of everything from tuna fish to fruit and vegetables. The kicker: You should also save money by buying them in bulk.

If this seems a stretch, ponder this: The emerging bull market in agricultural products is following in the footsteps of oil. A few years ago, many Americans hoped $2 gas was a temporary spike. Now it's the rosy memory of a bygone age.

The good news is that it's easier to store Cap'n Crunch or cans of Starkist in your home than it is to store lots of gasoline. Safer, too.

Write to Brett Arends at brett.arends@wsj.com

A Few Charts in our 'Babson Style'

As regular readers know, we had been regularly sharing 'hand drawn' charts on key market indices for the past five years at least at the site formerly known as Jesse's Charts. We've had to stop doing this and switch to the pre-packaged Stockcharts.com format because eSignal bought Quote.com, which provided the base for our charting. They were determined to add improvements few wanted while discarding key features and functions (such as stability) to which most had become accustomed.

Such is the way of modern American business management, of which Vista and MS Office 2007 are two other sterling examples. Have these fellows ever heard of the phrase "If it ain't broke don't fix it?" Apparently not. Microsoft is particularly annoying and hard to work with as a demi-monopoly that is not afraid to really screw things up trying to gain some advantage over their customers. In that way they are similar to other hotbeds of inbred thinking and incompetent execution, such as the Bush II Administration.

With considerable annoying hand work we were able to update a few of the old charts. Whether we continue this, or do something else, is another matter. But for now, here they are.

A word of caution, the present financial managers of the US seem hell bent on getting their way in the short term, with the long term be damned. Please keep that in mind if you participate in the market fun and games, and try not to get hurt fighting what *could* turn out to be another attempt to inflate one bubble to fight another's collapse.

Watching the charts is worthwhile not to "predict" where things are going, but rather to help keep your bearings when so many others seem to lose their memory and their mental equilibrium, thrashing from one extreme to another. We get a chuckle reading the many predictions people put up on the web, and the way in which they come back and crow about any correct predictions while carefully ignoring their mistakes. The first they tend to carve in marble, and the latter are written in the sand.

Bill Miller of Legg Mason Calls a Bottom (Hello Bottom? Please God, a Bottom!)

Thomson Financial News
Legg Mason Value Trust's Bill Miller forecasts 'worst is behind us'
04.23.08, 2:51 PM ET

SAN FRANCISCO (Thomson Financial) - Legg Mason Inc.'s Bill Miller, portfolio manager of Legg Mason Value Trust mutual fund, on Wednesday issued his first-quarter investment commentary to shareholders, projecting that the credit panic ended with the collapse of Bear Stearns.

'For planning purposes, here is my forecast: I think we will do better from here on, and that by far the worst is behind us,' Miller wrote. 'If spreads continue to come in, the write-offs at the big financials will end, and we may even have some write-ups in the second half instead of write-downs'

Miller noted that the wild card is commodities. (Another wild card might be the fund redemptions and margin calls Legg Mason Value Trust is getting as it hits 26 year lows. Bill's stuck now, he's got to keep going forward and hope for the best or call it a day. - Jesse)

'If commodities break, or even just stop their relentless rise, equity markets should do well,' he wrote. 'If they continue to move steadily higher, they have the potential to destabilize the global economy. We are already seeing unrest in many countries due to the soaring prices of rice and other grains.'

The weak dollar is another culprit of the commodity cycle, Miller said. However, he noted that the stage is set for 'what should be an improving environment for investors in stocks and in spread credit products. (Yes, things are looking just great. He's full steam ahead into the heart of a perfect financial storm like the skipper of the Andrea Gail - Jesse)

'Our portfolio, in my opinion, is in excellent shape, despite, or more accurately because of, its performance,' Miller said. 'Prices have declined substantially more than business values.'

Legg Mason Fund Hits 26 Year Low - Washington Post - April 5, 2008

The fund's top 10 holdings as of March 31 are Amazon.com Inc. at 6.5%, AES Corp. at 6.4%, JPMorgan Chase and Co. at 5%, Aetna Inc. at 4.9%, UnitedHealth Group Inc. at 4.5%, Yahoo Inc. at 4.4%, eBay Inc. at 4.2%, General Electric Co. at 4%, Sears Holding Corp. at 4%, and Federal Home Loan Mortgage Corp. at 3.5%.

The Legg Mason Value Trust dropped 19.7% in the quarter, compared with a loss of 9.4% for the S&P 500.

Shares of Baltimore-based Legg Mason were up 55 cents, or almost 1%, at $58.62.

Katherine Hunt

Legg Mason's Bill Miller Says 'The Worst is Over' - Forbes

We were going to give Bill the Pigman of the Week Award but the pigs started to complain.