Financial Intelligence Newsletter for 18.11.2021

The stock markets are rising, real estate is running from record to record, energy prices are even developing explosively and food prices also know only one direction – upwards.Titelbild des Blogposts

Inflation is still there…

The stock markets are rising, real estate is running from record to record, energy prices are even developing explosively and even food prices know only one direction – upwards. These rose last in October by legend 31,3 per cent to the previous year month. So inflation is still there, despite the fact that the entire world of experts has repeatedly told us that this is only temporary. In Germany, we’re seeing a 28-year high at 4.5 percent and in the U.S., we’re seeing as much as 6.2 percent, which is a 31-year high.

People must understand that you cannot have a little inflation – because a little inflation always leads to more inflation, and higher inflation inevitably leads to even higher inflation.“

Friedrich von Hayek

We are all being quietly expropriated by inflation because we are losing purchasing power. We can acquire less and less for our hard-earned money as the euro steadily loses value. For this reason, it has never been more important to protect one’s purchasing power from inflation. Money in the account makes no sense, not only because of inflation that nibbles away at purchasing power, but also because of the ECB’s zero interest rate phase that has been going on since 2016 and the risk of expropriation through the SAG law. Nonetheless, there are almost 3 trillion euros on the high edge of German savers. As long as the states continue to make unlimited debts and the central bank prints unlimited money, you have to do exactly the opposite as a kind of life insurance for your purchasing power. You have to invest in values limited by nature and by mathematics. These are the old tried and tested stores of value such as gold, silver, diamonds but also commodities and shares and the new digital gold Bitcoin. Or even food stocks. Because these will also definitely rise in price. There are many valuable tips on this in my new book and on my YouTube channel. Start now! Because inflation will not disappear by a Christmas miracle, even if Lagarde and Co. wish that eagerly

Sincerely,

1. Agricultural markets in crisis mode

In our last Newsletter, we took a closer look at the current energy crisis. But as the saying goes? A crisis rarely comes alone! And so it is also worth taking a look at the agricultural markets at this point. To describe them as “turbulent” in recent weeks would be an understatement. For example, reports of supply bottlenecks or shortages of raw materials, both for fertilizers and for agricultural commodities themselves, kept accumulating.

The headlines in recent weeks could also have come from a doomsday movie. If the impact of food crises weren’t so immense, it would be good entertainment:

‍Already in the last book “The greatest opportunity of all times” we had pointed out the opportunity in agricultural commodities, but more about that later.

Causes

Bad weather, high transportation costs, and a merciless FED driving food price inflation.

It is actually a mix of crop failures and bad weather, inertia effects from the supply chain due to the so-called “corona crisis” and, you guessed it, the much-touted inflation.

– Although Russia, for example, reported a smaller harvest than expected due to drought, the weather-related effects and their impact on harvests can still only be estimated imprecisely at this point in time.

– The effect is more clearly seen in the disruption of the food value chain: it is not only the sharp rise in fertilizer prices due to the high liquidity on the global fertilizer trading markets that makes the end product more expensive. It is also the rise in transport costs, since on the one hand diesel has become significantly more expensive and on the other hand, due to government aid programs, long-distance truck drivers in many places have now become accustomed to doing sweet nothing, or have recognized the value of their work and are demanding significantly higher wages than in the pre-Corona world. It seems that everywhere along the supply chain, from the grain of wheat in the field to the bread in the bakery, the proverbial worm is in it.

– Still, even if the above factors (weather and supply chain bottlenecks) are already a toxic mix for consumer wallets, it is the rampant monetary policies of the FED and ECB that are adding fuel to the fire of food price inflation. Because one thing should be clear to any observer of commodity markets: Like water, money always seeks the path of least resistance. And in this case, it is the markets for basic foodstuffs such as cereals, dairy products (which are strongly correlated with their input factor cereals), meat, rice, beans, and so on. And regularly it is also the case that especially the poor countries of this world are on the one hand often dependent on food imports and on the other hand have to pay even more for them when the dollar is weakening. Quantitative easing is one of the main drivers of food price inflation. Or to put it another way: a weakening dollar makes food more expensive. And the bill for this is paid all over the world by those who have to spend a particularly large share of their income on food, namely the poor.

Fertilizer prices at record levels

One of the key drivers of these cascading inflationary effects upstream and downstream in the food industry are fertilizer prices. They are currently at an all-time high. The main reasons:

– Nitrogen fertilizers are traditionally produced with natural gas. In recent months, natural gas has become very expensive, which in turn has made the raw material more expensive. At times, large producers such as CF Industries have stopped or at least reduced their production at its plant in the UK. BASF has also had to cut production in Germany. – Potash and phosphate producers, which produce in the mining sector, ultimately saw high liquidity on the market, among other factors, lead to a sharp increase in demand for their scarce goods

A gloomy outlook for consumers

Consumers will have to get used to permanently high food prices. The CEO of KraftHeinz (Heinz ketchup, etc.) recently announced that the company is currently still trying to absorb the price increases “entirely in the interests of the customer” within the company. In our opinion, it is only a matter of time before they abandon this supposed altruism, recognize the erosion of margins and also pass on the increased costs to retail prices. And by then at the latest, consumers in Europe will notice the higher prices.

Food price explosion in 2008 and refugee flows to Europe

Incidentally, such a food price explosion was also the case from 2008 onward. The rapid price increase at that time and the high volatility of the market was not perceived so strongly in Europe, because the EU was a large agricultural producer and at the same time had a strong euro at that time. It was not until 2008 that U.S. inflation rose to 3.8%, and due to the rapid price increases for rice, the large producers Vietnam and India reacted in panic reactions with export bans. The fact that, for example, large areas of agricultural land in the U.S. were misused in advance for the gasoline substitute ethanol (“E10” in Germany), or that the Egyptians, as one of the world’s major wheat importers, preferred to grow high-quality silk for export instead of grain for the people, is unlikely to have improved the supply situation.

An explosive mix of high food prices, corruption and discontent ultimately led to a young market vendor in Sidi Bouzid, Tunisia, dousing himself with gasoline and setting himself on fire on Dec. 7, 2010.

The fire literally took hold here, and a few months later the entire Middle East was in flames. Political analysts today see the cause of the phase known as the “Arab Spring” as largely due to food price inflation. You know the rest of the story: Muhbarak is history, Gaddafi assassinated, civil war in Syria, refugee flows to Europe, and so on.

Investment opportunities in a stagflationary environment

Given the less than positive outlook, the question is what to do?

As described in the book, investments in agriculture are at least one way to “hedge” against sharp price increases.

Historically, agriculture has often emerged as the winner of stagflation. This is because when food prices rise (inflation) and at the same time other sectors suffer from economic stagnation, investors often take refuge in crisis-proof agriculture, true to the motto: “There is always food.” As our good acquaintance Tavi Costa points out, it can be assumed that there will be further price increases over the coming months.

Specifically, in fee-based consulting, we are currently concerned in this regard with the manufacturers of fertilizers and agricultural machinery, as well as public companies with large agricultural land exposure. Especially the fertilizer manufacturers who produce their fertilizers via mining (potash and phosphate) were able to earn a lot of money in the past weeks. However, please keep in mind that most stocks in this sector have already performed well and primarily use setbacks to re-buy.

Mosaic, Bunge and the i Shares Agribusiness ETF we had also recommended in the book.

  • Mosaic: 109,60%
  • The Andersons: 72%
  • Bunge: 65,58%
  • Nutrien: 69,64%
  • iShares Agribusiness ETF: 34,78%
  • S&P500: 32,66%
  • DAX: 24,10%

Conclusion and outlook

Be prepared for permanently high food prices. Not all inflation drivers are yet priced into supermarket food prices. But that this will happen is only a matter of time. Even a full pantry is a simple but effective investment in times of high inflation. Supermarket prices will certainly not be lower in 2022, quite the opposite!

However, long-term investments in agricultural commodities as a hedge in the event of a crisis have historically been golden. Even Bill Gates has recognized this, as he has recently become the largest private agricultural landowner in the USA. And unfortunately, recent investments by Bill Gates have usually led to a positive outcome for his ideas and goals.

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‍2. Precious metals

You would think all commodities have exploded over the past 12 months. Really, all of them?

One small commodity class doesn’t seem to have gotten the memo! Precious metals didn’t move from the spot over the past 12 months.

That could change from 2022, however, as gold and silver have sent their first sign of life.

Gold could last week, driven by record inflation figures in the U.S., break out of its downtrend that has lasted for more than a year. We expect that precious metals will continue to require a fair amount of patience and we will only see major increases in the course of 2022.

In the larger picture, we see in gold the largest cup & handle formation we have ever seen. Usually such chart formations end with a major breakout to the upside. Therefore, it pays to be patient and continue to accumulate precious metals.

Gold and silver price forecast until the end of 2022:

– Gold at over 2500 $

– Silver at over 50 $

Especially mining stocks are clearly buying opportunities at the current levels, as you rarely see and certainly represent one of the greatest opportunities of all time.

3. Bitcoin Update

What a ride!

The last few days in the bitcoin and crypto market have once again caused a roller coaster of emotions for many. First we break out to new highs multiple times and then we drop like a stone back to price regions beyond the 60,000 $ mark.

For us, this correction came as anything but a surprise.

Why?

We pointed out early on that the market had already lost steam at its 66,000 $ level and was hanging on by a thread. It was only a matter of time before this snapped and taught the market some humility again.

Where do we stand now?

The following chart shows us that Bitcoin, after a false breakout, is back in a superior range. The phase after the all-time high has now formed a “supply block“, which could act as resistance in a recovery rally. This block is located between 63,000 $ and 65,000 $.

From there, we should then reach our correction target of around 53,000 $, which should provide support as a “demand block“.

This price level is probably the last entry opportunity before Bitcoin starts to rise sharply again.

A rally after the correction could bring prices up to 80,000 $!

The content of this article was translated from the German original: https://www.friedrich-partner.de/blog-post/newsletter-finanzielle-intelligenz-i-18-11-2021 loaded 11.12.2021

Published by Schmitt Trading Ltd

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