Inflation is coming. No, inflation is here… big time. And not just in the United States… it will likely be a lasting worldwide phenomenon for the next year or two (at least).
Anybody who took an intro to economics class probably remembers the classic definition of inflation as being created by too much money chasing too few goods. Because price inflation is a rise in the general level of prices, it is fundamentally linked to the supply of money.
Low interest rates have created “cheap” money. When you add up the amount of credit extended just within the U.S. over the last several years, the amount of debt is staggering. When people utilize this cheap money, prices go up because in most cases the volume of goods does not go up commensurately.
Then came Covid-19; a worldwide pandemic that caught governments off guard. Every country tackled the problems differently, but one common theme is massive deficit spending – spending money these governments didn’t have. So, where did they get this money? They either printed it or borrowed it.
The result? Price inflation. In a massive display of cynicism, government leaders around the globe have either denied the existence of inflation or have actually said it’s a good thing. Why? Because if their currency is worth less (in some cases worthless) then it will be easier to pay down their debt.
Yes, that is a fairly simplistic explanation but true nonetheless. When the money supply grows faster than economic productivity, we get increases in the price of goods; commonly called inflation.
In the U.S. alone, $5.9 trillion has been allocated to combat the effects of the Covid-19 pandemic (so far) and more is likely (by the way, that’s $5,900,000,000,000). Whether or not those trillions are well spent will be the subject of debate for years, but the fact that they are being spent is undeniable and it will impact inflation. Most countries will spend on a much smaller scale but spend they will.
Another inflationary input is scarcity. As you have probably read ad nauseum, we are on our way to having over 9 billion people on this planet by 2050 and will need to dramatically increase the production of food. There will likely be localized shortages of food and those with the most money will be able to buy it. This “demand inflation” places pressure on food prices across the board.
Berkshire Hathaway CEO Warren Buffet warned during a recent shareholders meeting that, “We are seeing very substantial inflation.” He was referring to the building industry but it applies to food as well. Morgan Stanley has issued its own warnings of long-term inflation and even the potential of hyperinflation.
Former Federal Reserve Chairman and current U.S. Treasury Secretary Janet Yellen initially pooh-poohed the idea that inflation was becoming a concern. Just recently she changed her tune when she stated that interest rates may need to rise in order to keep inflation in check.
The Foundation for Economic Education noted that there is an ongoing “surge in food and grocery prices that threatens Americans’ ability to keep food on the table.” In America, food prices climbed 3.9% in 2020 and the U.S. Department of Agriculture estimates that groceries will increase an additional 3.0% in 2021. As an example, the cost of common fruits like strawberries and apples jumped an alarming 11.3% in 2020. Personally, I predict inflation in 2022 will be in the 7% to 10% range.
Okay… inflation is here and likely going to get worse. As a practical matter, everyone will be impacted by rising prices, especially the elderly and poor who may be on fixed incomes. As each dollar buys less and less, they will feel the pinch on limited resources. Inflation is like a stealth tax, surreptitiously stealing the value of your money. There is talk of a higher-than-normal Social Security COLA, but it won’t keep up with inflation.
So, how do you weather the storm? What can you do to profit from inflation while also dealing with rising prices?
First of all, you may want to question the advice to move into cash. Why would you want to purchase cash by selling other assets just to watch your dollars get smaller in value day by day?
Second, consider buying productive agricultural assets especially greenhouses and farmland. Berkshire Hathaway is bullish on agriculture and went so far as to say that productive assets “such as farms, real estate and, yes, business ownership produce wealth – lots of it. Most owners of such properties will be rewarded.”
You don’t have to be the Oracle of Omaha to understand that whether economies expand or collapse, everyone needs to eat. This is why many investors see purchasing agricultural assets as more than just a safe port in an increasingly stormy economy.
I’ve been preaching that message for years; long before founding Alternative Ag Investors. Farming is a long-term proposition that will pay off not only for those that purchase agricultural assets, but likely their children and grandchildren as well.
Building an ongoing, passive income that grows with inflation is a sound plan followed by the wealthy and wise financial pundits like Buffet for decades. Now is the time to buy and I’m offering opportunities to not only be a part of the food crisis solution but to profit at the same time. Win-win.
