Finance returns to the year 1400

finance returns to medieval valuesI didn’t think in the year 2000 that towards the end of the first decade we would see the financial world turning to the things that were of value six hundred years ago. Initially with all of the fuss being made and the news of how the Internet was changing the world I figured that we would be living in a society where everything worked on-line. People are slower to adapt than technology, indeed, blogging was around for years before Irish Mortgage Brokers embraced it as part of our drive to promote economical knowledge amongst our clients.

However, no matter how I strain to think back on the turn of the millennium and century, there was no part of me that thought Gold would be the big news on the market. Seriously! Gold was fought for during the conquest of South America (I prefer the more accurate grammatical description of ‘rape and murder’ of South America), and Kingdoms often financed their sovereignties with gold, it was held in reserve as a value to back currency when paper money came in (read up about the Bretton Woods Regime). Then of course you can wear it, doesn’t suit everybody – the likes of me for instance! And you can fill teeth with it, but beyond market demand and jewellery the shiny yellow stuff has limited actual use. And that is probably the reason that Gold was not a massive market mover during the latter half of the 20th century. In fact, it was considered very ‘safe’ because of its lack of movement, granted the trend over time was upwards but not at the rate the stock market rose.

Then of course there is food, yes, good old fashioned ‘you actually can do this at home’ food. This is things like wheat, soy, pork, beef, coffee, you name it and chances are the price of it has risen in the ongoing commodities boom. Commodities have been on the rise so long that they are not (by some analysts) considered to be in a simple ‘boom cycle’ but in a boom ‘super-cycle’. The worlds population has risen painfully fast, the Economist did an article last year about cities, now half of the worlds population live in cities, and guess what cities don’t have? If you said ‘farms’ you were correct, if you said ‘low crime rates’ you were kind of correct but not for the purpose of this article, and if you said ‘decent property prices’ you were wrong… at least for the time being.

commodities are back in fashionThe breadbasket is a common term and the link provided gives some interesting insight to the history of breadbasket areas, they used to be hotly contested zones in military conquests because food availability used to be a serious problem, many scholars feel that the rise in the human population can be correlated to the industrialisation of farming and guaranteed food availability, with the exception of Russians who had to queue for bread – not like the five minute wait in Spar during busy times, I mean for hours/days – there are not likely many Europeans who have experienced food shortages in the last forty years, my own experience was when my local shop didn’t have any more Fry’s Chocolate Cream bars left, a totally humble comparison, in fact I feel guilty even thinking about it. A fact not worth remembering is that the Chocolate Cream bar is one of the longest selling bars in history, it was first launched in 1866.

There are even specialist funds launching in food, one brought to the market by Schroders was so popular that they had to stop any new money from entering the fund! Then of course there are new words -or at least new to most of us- such as Agriflation or agri-flation. The definition of agriflation is (layman speak) the rise of cost in food materials which is brought about by either a rise in production cost or increased demand for a particular foodstuff. So it describes the inflation of food prices, and it has food retailers like Aldi, Lidl, and Tesco worried because traditional loyalties might be broken with one retailer due to people looking elsewhere for bargains, looking for bargains doesn’t mean you will find them but certainly the shop with the bigger stockpiles that were brought in cheap have a competitive advantage for the first time over shops that work on a ‘Just in time‘ basis and carry minimal stocks at any given time. The same thing is happening in the supermarket as what happened to different airlines who did/din’t pre-buy fuel supplies when oil started to rise.

rising pork prices hit chinaThe Economist did a cover story special on food in December of 2007 that talked about an ‘End of Cheap Food‘ and it had a second story about how the rising incomes in Asia and ethanol subsidies in the USA were some of the main market changing vectors. Last September wheat was at $400 a tonne, the highest price ever recorded, however in real terms it is below the prices it reached in 1974. There are so many similarities between now and 1974 that I firmly believe studying that time and the lessons learned from it will provide the route out of the current recession and prevent knock on downturns as was experienced throughout the 70’s into the 80’s and only cured halfway through the 90’s.

With the world having more mouths to feed than ever, and with people still starving to death by the tens of thousands daily we need to look at food as a more valued resource than we did before, I think the meteoric rise in rubbish output per head of capita is partly due to cheap food and the ability to waste more as things become devalued. Our waste processing industries might have a lot less to do if the trend of rising prices continues.

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