There’s little doubt that the world’s superpowers are now fighting a new war. It’s not a cold one, or a hot one. No tanks, bombs or poison gas. At least not yet. But open hostility between Europe, Brazil, China, India and the United States blanket the headlines nearly every day.
It’s a long-awaited answer to the question, “Do deficits matter?” And the answer is a resounding, “Yes of course they do, don’t be silly - why in the world wouldn’t they matter?”
To recap, the United States is hellbent for leather to devalue its currency in an effort to ignite growth in the economy. Devalued dollars make American goods cheaper abroad and supposedly encourage spending and speculative investment rather than saving and safe investment.
These policies necessarily punish the types of productive savers that should be the backbone of a strong economy. Reckless spenders are rewarded - you know, the types of people who pay credit card bills with a credit card. It’s actually a pretty apt metaphor for the Federal Government. They’re currently funding past spending with debt, and they’re funding that debt with more debt.
And finally, world leaders are calling a spade a spade. French Finance Minister Christine Lagarde said, “We need reserves that are surer and more stable” than the dollar.
"This is a currency war that's turning into a trade war," said Brazilian Finance Minister Guido Mantega.
A story in The Wall Street Journal this morning quoted Senator Charles Schumer, who plans to “punish China for its ‘currency manipulation’.”
So world leaders are throwing lots of mud. And it seems like most of it is hitting the United States.
That’s just the super-text. The real important fallout from these currency and trade wars, and all the nasty mud-slinging is that the prices of “real stuff” like corn, wheat, oil, coal, copper, sugar and rice - you know, the stuff we need to live - are all on the rise.
President Sarkozy might hurt our feelings with his tough talk on the dollar, but higher food prices are actually causing real harm in very, very dangerous ways.
Hundreds of people were injured thanks to food riots in Algeria, and they’re not far off in places like India and Pakistan, which are now squaring off over onions, of all things.
Truly, a keystroke on Ben Bernanke’s magical-money computer is having typhoon like consequences in places where a 10% spike in food prices can be a matter of life and death.
I think we can expect the words “food riot” to enter the American lexicon sometime in the next 18 months, and I don’t say that flippantly.
Now is the time to make sure your portfolio has adequate exposure to agriculture stocks.
I do still like these companies, but they’ve all run past what I would call a “cheap” valuation. I’d look for any major correction of 5% or more as a good time to build a position in these companies, but for now, I’m more interested in buying another company that’s selling at a discount to its peers.
I’m talking about Bunge Limited (BG). This company operates in a similar sector as Archer Daniels Midland and Monsanto, but is currently selling at a much lower valuation. They also have production and sales in 30 countries, and they sell fertilizer in North and South America. They process seed and grain for both food and bio-fuels. They’re what I called diversified in their sector.
I think you can safely buy shares of Bunge under $70.
As the dollar continues to wane and world leaders bicker over devalued currencies, food prices will rise. Invest accordingly.
Disclosure: No positions