Ben o Ben ! Food for thought: Grains, fresh Meat and Pie

Sometimes it's better to roll your tongue than to come out with an academic response.
We find that there are too many people in America today who fail to read and apply the lessons of history.

Inflation in consumables served on the foundations of deflation in hard assets = Recipe concocted by Greenspan and served in a dish prepared by Chef Ben.




We recently addressed the issue of the plight of Suburbia. Today we would like to acknowledge the image of the "man about town", your local successful scrappy, hard working entrepreneur.


The entrepreneurs
The USA is inescapably leading the world into a long overdue credit rationing process which ends up with money out off everybody's hands but especially the entrepreneurs who have to scramble and readjust their plans back to the pre 2001 era.
First is to call the money jockeys: "Hey MJ , I need cash, my bank is calling in my lines, so sell everything, I want a check on Friday = 24% drop in DJIA.
Second call: "Hello DDD Wide Berth Marina?, I am Mr. SoNso, I am calling to cancel my berth reservation. Looks like I won't buy that gas guzzling floating palace, condo in boca, RV etc... . Will call you next year (maybe!). Hard goods index down 44%
Third Call: "Hi Honey, listen just spoke to OUR accountant. Seems we gonna have to tighten our belt somewhat, so we need to postpone our travel plans until next spring. Hopefully things will pick up. By the way, I canceled your new Mercedes order; you can keep your old one for another year." Car manufacturing index down 77%, Airlines down 84%

Our little example can be repeated all over coastal towns in Europe, North America and the once booming Asian stock markets.

If the hard working entrepreneurs get squeezed , you are taking out a lot of growth potential out the window. For the easy going crowd ( if not to call them lazier ), the declining value of their properties is killing their ability to pull out equity or refinancing jumbo equity loans. Another 25MM mortgages are 20% away from being upside down in the US Alone! So you can see the economy contracting even though Bernanke, Bush and Paulson have to continue to lie about the state of the economy for the "greater good!"

Remedies: STILL THE SAME
We believe that oil must fall, recent commodities price increases inexorably will come down to manageable levels, 10Yr Treasuries must trade over 5% and eventually over CPI inflation for the USD to have any hope of recovering. With the Fed intent on preventing any sane foreigner from buying US fixed income products at current negative real return rates, you have this stalemate among national institutions who are unable to move. If anything, Investment Bankers tried to ship out their access to cheap money and play carry trade suppliers a la Japanese. We believe that went to China but it will not turn out well for the bettors or their bankers.

In the USA, with less RVs, boats and cars sold in 2008, we can expect the prices of metals and resins to decline. We laughed when we saw DOW Chemicals try to increase the price of their products just about the time their order book was going to be chopped off! Unfortunately. none of these big items drops will help the average consumer which will have to contend with horrendous food price increases and his energy bill. The farmer paid Monsanto top dollar for his seeds, he also paid Potash top dollar for his fertilizer stock, and Exxon top dollar to power his Caterpillar and John Deere. Hell if he is going to lower his prices unless he has a record crop which collapses his prices ( with silos empty, VERY doubtful this year!)


CATTLE vs. the GRAIN FARMER
Cattle prices are in a fire sale as cattle ranchers are losing money on practically every head of cattle they raise if they have to buy grain on the open market. By Christmas, the reverse will be true. You better get in the habit of buying frozen meat or get ready to absorb another major shock at the cash register when you will try to buy fresh meat by then. Cut out this week's meat specials and put it in an envelope to be opened Dec 23rd...


As AMERICAN AS Apple or Gulliver PIE
De-leveraging hurts everybody. It creates huge dislocations in every society. We love to use the analogy of Gulliver and his fellow travelers sitting in a pie on the counter. When you put it in the oven, it can be pretty toasty but if the pie gets smaller, you get more people trying to move towards the center and the odds increases that you may be get displaced towards the edges and its scorching sides. This economic pie started contracting as well as cooking in July 2007 and we don't think Gulliver will come out of the oven anytime soon with the current cooks in the kitchen! First of all the cooks refuse to admit that the pie is contracting and second they don't think the heat is anything to worry about.

OUR ADVICE
With Paulson and Bernanke set on using financial stocks short sellers as temporary scapegoats, To stay cool, Keep looking towards energy efficiency, transport efficiency (rapid transit, electrics etc.) as two global phenomenons that will create the next generation of super "cool" companies. Please also invest in a large freezer, you don't know when it will come in handy!