A GREAT researcher gave me some of my greatest coaching for which I am eternally grateful. As a PhD in biochemistry, he referred to economic and geopolitical research as the same thing - noisy data.
Where, within the noise, is the true information that can be relied upon.
Looking back at some of the calls and emails from last week’s column, there were a few further points of noise to cut through.
Hans Gosling wrote a great book on ‘10 reasons why you are wrong about this world, and why it’s better than you think’.
One perfect quote the media propaganda feeds upon relates to the blame instinct. It ‘makes us exaggerate the importance of individuals, and... find one guilty party’ derailing our ability to have a fact-based understanding of the world.
This ‘over-simplistic finger pointing distracts from the more complex truth and prevents us from focusing in the right places’.
Nothing is truer than in finance, especially where a market maker can make as much money on an asset falling as on it rising.
Ukraine/Russia was being used as the cause of the current excessive inflation and the potential rate rises will also be guided that way too.
However, at the end of 2021 the UN's Food and Agriculture Organization's food price index was at its highest level in over 10 years. This is pre any of the current war.
Commodities, as I covered last week, became very attractive in 2003 to 2008 causing widespread havoc, food riots and inflation that simply didn’t ‘naturally’ exist.
Such rises are not in hand with wage rises, so they create a drastic fall in living ability – prices up, income in real terms, down. This affects those with the least money (both countries and individuals) as the increase is straight out of disposable incomes and if you don’t have a disposable income.
In 2021, bets on the markets were all long despite prices being heavily volatile. ‘Long’ means they are leaving the money invested and believing they will rise, unlike ‘shorting’ which is betting on a fall.
Simply put, investors believed categorically that food prices would be rising and that was at a time when demand was weak.
Grain, for example rose significantly in 2021, despite supply being at a record high of nearly 2.8 billion tons. Explain that.
From 2015 to 2020, food prices were benign but soared in 2021 by 28 per cent. Still no war.
Whilst inflation was seen to be a short-term issue due to supply chain issues (and the bottle necks they created), alongside employment issues (just can’t get the staff) it has remained more stubborn.
Responsibility, therefore, has to be taken by the governments and institutions stockpiling both through physical food and also that of financial speculation.
If they have an ounce of whit, they will know they are indeed squeezing low-income economies into hunger, starvation and malnutrition. Now, I don’t fully grasp the purpose of life, but I’m sure it’s not creating starvation and permanent underclasses?
As in 2008 when the last commodity bubble was created, policymakers did nothing. Whilst a lovely orator, Obama, despite saying he would close such loopholes, did nothing.
Solving the inflation and food issue, now involves increasing interest rates according to central banks. I don’t get that at all.
This takes further money out of the pockets of the ‘man on the street’ and lowers their wealth.
In 2021, fossil fuel companies received $8.2bn in tax bailouts. Shell, Chevron, BP and Exxon meanwhile netted a record breaking $75bn in profits.
Such organisations bought over 6.6 billion of their shares back and expect to purchase $22bn in 2022 such is their profits from energy prices.
It seems to me that the easiest steps to reduce inflation would indeed be to apply a windfall tax against the said organisations; ban lobbying by the said organisations or anyone who can influence government for their profits in a non-democratic fashion; heavily regulate speculation of investments in commodities and block those who are deliberately moving markets for their benefits.
It’s not how life is supposed to work.
Peter McGahan is chief executive officer of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you have a financial question call Darren McKeever on 028 6863 2692, email info@wwfp.net or visit wwfp.net.
