Inflation and the Coming Zombie Apocalypse

I got a call around 4:30 last Friday and when I checked the caller ID I saw that it was a buddy of mine in California. That was pretty odd, because it was only 7:30 in the morning in Cali and he's not an early riser. When I answered, it sounded like he was in his car. And he was excited about something.

"Dude, I just got a call from Mike and he told me the grains locked limit-up on the open. Is that true?" he asked.

"I haven't seen anything yet, but I'm not really paying attention. Which grain?"

"All of 'em."

I actually laughed out loud at that one and said, "Buddy, if all the grains locked limit on the open, I think I would have heard about it. Hang on, let me see what's going on." You can imagine my surprise when I pulled up my commodities screen and saw that he was right. Corn, wheat, and soybeans were all locked limit.

Let me put this in perspective for you. Commodity prices don't move much year over year. If you look at a 10, 20, or even 50-year chart for a given commodity you'll see a few peaks and valleys, but it's a flat line for the most part. Commodity prices move so little over the long haul that a great many commodities price their movements in fractions of a penny.

So it's rare for a commodity to hit a daily trading limit (these limits are established by the exchanges and act like a circuit breaker in the stock market). It's rarer still for a commodity to "lock" limit, meaning that the limit has been reached and there are no trades in the opposite direction, so the market is "locked". For an entire class of commodities to lock limit usually requires a global catastrophe of some kind.

In this particular case, the USDA revised a crop yield report to the downside (meaning less crops and higher prices) and the grains were off to the races. I think it's just a hint of what's to come if we enter the increasingly likely scenario of declining global crop yields combined with hyperinflation.

The Great Recession has caused a fundamental shift in the psyche of the average American. Where just a few years ago we were writing checks against our home equity to take a cruise through the South Pacific, today we're in survival mode. Consumption has fallen off a cliff, the national savings rate has skyrocketed, and we're deleveraging in a big way.

All this has come at a heavy price. 1 in 6 Americans is out of work, and the rich are getting richer on the backs of an ever-increasing number of the poor in America. The average American is looking for someone to blame, and the scapegoats vary widely by region and economic class. For the Tea Party, government's the problem. For wage earners, it's companies shipping jobs overseas, or immigrants coming here to work for less. For the rich, it is the poor and their swollen sense of entitlement. The country is on edge. Throw in a food shortage and rapidly rising prices, and you just might have a Zombie Apocalypse on your hands.

I use the term "Zombie Apocalypse" as a tongue-in-cheek reference to the various forms a breakdown in civil order can take. Race riots, battles over dwindling food and/or water supplies, natural disasters like Hurricane Katrina, and the impoverished rising up against the wealthy are all examples of what can happen.

Gold hit an all-time high yesterday, and silver joined the party by hitting a 30-year high in the same trading session. Meanwhile, the market is chugging along with the Dow now over 11,000. Inflation is becoming a persistent reality of the market. Hyperinflation isn't far behind, with QE2 now all but a sure thing. To the rank and file American, few things are scarier than food inflation, and it's already here.

Food inflation is real, and it is here. A comment from a recent reader’s post: “Just yesterday I compared my receipt from a grocery run to prices I have from the same exact store from September 15, 2009. Bacon? Up 52% to $13.69 from $8.99 for 4 lbs. Butter? Up 73% to $9.99 from $5.79 for 4 lbs. Pure vanilla extract up 14% to $6.79 from $5.95. Chopped dried onions up a mere 2% but minced garlic (wet) was up 32%.”

Just last night I went to pick up a baguette to go with dinner and noticed that the price had risen from 90 centimes to 95 centimes. That might not seem significant in the grand scheme of things, but baguettes are one of the items under price controls by the French government. (I think they aren't allowed to cost more than 1€ so that no one in France has to go a day without eating, the thinking being that everyone can afford 1€ a day.) And baguettes are just flour, salt, and water.

My point in all this is that nothing can lead to a breakdown in civil order faster than people being unable to feed their kids. So what can you do about it? Glad you asked.

There is a new subset of the American population known as "preppers". As you may have guessed, the name comes from the discipline of preparing for the worst. These preparations run the gamut from buying a survival bunker 30 feet under the Nevada desert, to stockpiling weapons for home defense, to massive food storage. Costco recently cashed in on the craze by offering a 1-year supply of canned and freeze-dried food (for 1 person) for $800. The product is no longer available because they can't keep it in stock. The comments on the product page I linked to say it all.

Plenty of other companies are turning a buck on America's newfound love of paranoia, but perhaps the most cynical (and utterly hilarious) scheme I've run across is Eternal Earth-Bound Pets. This is a company operating in 24 states that is staffed by confirmed atheists. Why does that matter, you ask? Because they're selling pet rescue insurance to those people who believe they're going to be called up to Heaven in the Rapture, but want to make sure the pets they've "Left Behind" are taken care of. You can't make this shit up.

All joking aside, it's a good idea to be prepared for anything in this day and age. Rising food prices are serious business and could lead to civil unrest. At the very least, you should rent Shaun of the Dead. And keep that E-Tool handy.