FOOD PRICE INFLATION SCARES THE FED

Stock markets around the world fell Thursday, led by the 246 point dive, or 1.5%, for the U.S. Dow Jones Industrial Average and a 1.9% drop for German stock market index. Analysts generally pointed to worries about shrinking Chinese lending and the potential trade war between Russia and the West, but I am more concerned that since the beginning of 2014 food prices have skyrocketed.

The Federal Reserve must be concerned that international support for “cheap money policies” to stimulate economic growth may be funding commodity speculation that is driving prices higher and creating widespread misery. If the Fed decides to raise interest rates to dampen speculation, I believe stock and commodity prices are in for a hard fall.

Margin debt on stocks is now higher than at its last peak in 2008, right before the stock and commodity markets crashed. This willingness to speculate on margin may also explain the big jump in food prices since the first of the year as shown below:

Cattle Hogs Grains Milk Coffee

+28% +25% 14% +17% +67%

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