MORAL FOUNDATION
Immortal words were
penned 233 years ago by the luminary Thomas Jefferson:
We hold these truths to
be self-evident, that all men are created equal, that they are endowed by
their Creator with certain unalienable rights, that among these are life,
liberty and the pursuit of happiness. That to secure these rights,
governments are instituted among men, deriving their just powers from the
consent of the governed. That whenever any form of government becomes
destructive to these ends, it is the right of the people to alter or to
abolish it, and to institute new government, laying its foundation on such
principles and organizing its powers in such form, as to them shall seem most
likely to effect their safety and happiness.
Much has changed in the
course of human events. The once young nation endowed with incredible
natural infrastructure, abundant natural resources and unbounded borders
provided the opportunity for Atlas to carry the world.
NATURAL INFRASTRUCTURE
A few years ago I floated
down the Yangtze river from China’s former capital Chongqing to Wuhan.
It is one experience to read about China’s rise and another to
walk amongst, float by or fly over that growing dragon. China is
spending billions of dollars to tame this flooding beast and on other similar
terraforming projects. While Russia has plenty of land little is
usable, they have only one convenient river and scant access to the oceans.
Likewise South America
has some of the most fertile land in the world which imbues the lungs of the
earth with its life sustaining power but those same jungles partition the
continent and have prevented a unified trading zone. While
Brazil’s Iguazu Falls are majestic they do not help trade very much.
But the United States has
a natural irrigation system and transportation waterways. The terrain
is easily suitable for farming, carving tracks for railroads and an
interstate highway system was, relatively, almost effortlessly constructed.
Capital that other countries have to spend terraforming is instead
allocated by the United States to investments, like research and development
for millions of patents or wonder weapons. Additionally, the United
States financial markets have mushroomed.
BREADBASKET FOR THE WORLD
In 233 years the world
population has swollen from less than a billion to almost seven billion.
The Japan Times reports that Canada produces 145% more calories of food
than it consumes and the United States is close with 128% while the island
nation of Japan has recently dipped to 39%.
People eat or people die.
During tough economic times food is usually the last expense to be cut.
General Mills (GIS), Kellogg (K), ConAgra(CAG), Tyson (TSN) and
Kraft (KFT) all appear to be doing fine despite the worsening economic
environment. Commodity prices have retreated but the price of sugary
corn cereal appears to be fairly sticky. This financial analysis will
use data from financial statements prepared in accordance with fair-value
lying standards.
Kraft needs to get their
administrative expenses under control and the debt millstones on the balance
sheet could make maneuvering difficult considering the constipated debt
markets. Despite yields of 4.6% with Kraft and 3.4% with Kellogg they
are evaporating stockholder equity although Kraft is doing it fastest.
While ConAgra yields 4%
and has declining revenue they have taken preemptive steps over the past
couple years by cutting general expenses by 8.8% which has increased their
net income by 74.3% respectively. It is good to see management that
understands that it is net income and not sales that matter.
Cashflow is king and the
food companies have decent yields. Both General Mills with 3.40% yield
and Tyson with 1.30% yield have been generating stockholder equity. But
General Mills is encumbered with long-term liabilities that are 128% of
stockholder equity while Tyson’s ratio is 74.4%.
With the Fed failing with
quantitative easing and the specter of hyperinflation it is the basics that
are important. Food, clothing and shelter. Should the FRN$ enter
hyperinflation it will be food, gold, silver and guns that will likely perform
best and the food companies will probably weather the storm just fine.
Hyperinflation is only the end of the world for some while others may
notice only minor disruptions because they have already switched to
alternative monetary structures like GoldMoney.
Therefore, as long-term
buys these solid blue chips, in order of favoritism, are a good value:
ConAgra at 0.56gg, Tyson at 0.37gg, General Mills at 1.66gg
and Kellogg at 1.29gg.
PEAK OIL SPECTER
But these food calories
are generally transmogrified from imported oil. As a result of almost
free energy Americans feast on food from thousands of miles away and wash it
down with water from Fiji.
The American economy
seems only dazed from its first impact with Peak Oil and oblivious to the
unyielding wall it just hit. Those unacquainted with the topic may want
to read Twilight in the Desert by oil investment banker Matt Simmons, The
Long Emergency by James Howard Kunstler or the novel World Made By Hand.
American oil production
has been in terminal decline since 1971. Worldwide production appears
to have peaked in 2005. The current crude oil stockpiles and recent
demand destruction are immaterial to this foreboding storm. In the
geo-political scheme this issue is guiding many of the decisions from
Washington to Moscow to Beijing and Tehran. The gold to oil ratio does
matter. Many may take our complex oil powered systems, like food
production and distribution, for granted.
AMERICA IN DECLINE
The American Empire rose
from a land of plenty governed by the Constitution which Gladstone said is
“the most wonderful work ever struck off at a given time by the brain
and purpose of man” (pg. 323). The entrepreneurial minded people
governing themselves under a moral law and endowed with abudance of food,
natural resources, rivers and tributaries generated more wealth and advancements
than in all of recorded history.
But then their domestic
oil production peaked, their rogue President declared their promises to pay
gold would not be honored and the essential checks and balances in their
political machinery, gold and silver, were banished from the monetary realm.
As a result the federal
government is completely out of control while state governments from New York
to California are absolutely insane. For example, California is now
issuing state-registered
warrants with Bank of America
accepting these California IOUs while the non-favored banks keep failing with over 50 in 2009.
This is just another pass-through bailout by the federal government and
probably intended to keep one of the largest economies in the world from
issuing a California Dollar with a Bear on it. But what is a
dollar anyway?
While the July 4th tea
parties are getting ready to start the real political fireworks will most
likely be in 2012 or 2016. After 4-8 years of Washington intentionally
exacerbating the greater depression the meager 78M baby boomers will square
off against 95M Millennials with the former wanting to preserve a failed
system while the later are entering their peak producing years and will want
to press the reset button. During all of this chaos hopefully the food
companies will be able to keep food on the shelves.
CONCLUSION
America is a land of
plenty unique in all the world. With out of control government and a
slow motion currency crisis the future does appear ominous. As the
derivative illusion of wealth evaporates there has been a return to basics
with the growth of survivalism in the suburbs. While many companies
have been and will be eviscerated by America’s decline during The Great
Credit Contraction; instead of buying gold the food companies,
particularly General Mills, Kellogg, ConAgra and Tyson may fair better at
generating wealth.
Humanity occasionally
takes detours as it climbs from the swamps of tyranny to the celestial stars
of freedom, peace and prosperity. The out of control and insane
governments are becoming destructive of the ends of safety and happiness of
the heirs of the Founding Fathers. It is the right of those heirs ‘to
alter or to abolish it, and to institute new government’. Despite
the current threats and any potential political fireworks, the country
America will be a major world power long into the future.
Today we watch hordes of
Tehran’s youth march. Tomorrow it will likely be America’s.
Why? Because mankind will be what they were born to be:
free and independent. Happy Independence Day!
Disclosure: Long
physical gold and silver, indirect long interest in GIS and no position the
problematic GLD or SLV ETFs, K, CAG, TSN or KFT but may be picking up some
CAG or TSN.
Trace Mayer
RuntoGold.com
Trace Mayer, J.D., holds a degree in Accounting from
Brigham Young University, a law degree from California Western School of Law
and studies the Austrian school of economics. He works as an entrepreneur,
investor, journalist and monetary scientist. He is a strong advocate of the
freedom of speech, a member of the Society of Professional Journalists and
the San Diego County Bar Association. He has appeared on ABC, NBC, BNN, many
radio shows and presented at many investment conferences throughout the
world.
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