A new set of realities is about to envelope the globe. Realities that will lead to hard choices, shortages, investment losses, economic pain and potentially conflict. America though is in position to ward off those problems and perhaps even thrive if we can see clearly enough to make good choices.
In December of 2011 I won the "Next Great Investment Columnist" competition with MarketWatch.com of the Wall Street Journal network. My winning piece identified that as the world population grows and the middle class swells, that natural resources demand will for the first time outstrip new supply. While that may sound logical, it has never actually happened before. Until very recently, new supplies have always kept pace with new demand.
On top of that circumstance are the massive debt problems in developed nations and monumental demographics shifts globally.
Companies that rely on raw inputs to produce an end product will struggle to maintain profit margins. Their stocks will suffer mightily as they have already squeezed almost as much efficiency out of their operations as possible.
Many service companies will also struggle due to many more years of slow economic growth in developed nations due to the debts those nations carry.
In 2011, and before, I have also discussed that the United States was uniquely positioned to not only survive in this environment, but to thrive due to our uniquely blessed geography and a wave of new technology in energy and agricultural production.
Until very recently, few believed that America was getting ready to benefit from being an energy self-sufficient country and expanding upon the most bountiful agricultural harvest in the world. Today, a steady trickle of people have started to realize how massive of an event - in actuality a series of slow moving events - it is that America is set to become energy independent and feed even more of the world.
Among those voices recently echoing what I have been saying for a few years now, are Bill Gross of PIMCO who stated that "the cult of inflation may have only just begun" and Jeremy Grantham of GMO who recently wrote that investors must shift dramatically into resource linked investments. One need look no further than Warren Buffett's Berkshire Hathaway buying the Burlington Northern Railroad to move oil and grains or taking stakes in pipelines across America, that American resources are a pathway to profits.
What's Coming to a Grocery Store or Gas Station Near You?
If you have done your own shopping the past several years you know what I know. The cost of produce and meat has risen. So has the price of cheese, milk and other bread. This is not going to stop. In fact, in 2013, you can expect meat to rise quite a bit due to the drought of 2012 and the resulting slaughter of many animals. If you have an extra freezer, fill it soon. If you have yard or window space, plant a garden in the spring of 2013.
While we have seen some stability in gasoline prices in America due to new supplies of oil in North Dakota and Texas, do not expect much more relief. In order for America to pay down her debts, we will export fuel. In fact, in 2011, the United States exported fuel for the first time in decades. In 2012, we will be net exporters of fuel again. And in coming years, we will export more, to the point that prices drift upward over time.
This basic sort of food and energy inflation will not abate. Luckily, the United States should only suffer mild inflation unless we continue to binge spend like drunken sailors. Our supplies of energy and food are indeed massive.
If, as J.P. Morgan CEO Jamie Diamond has been pointing out recently, we use our energy assets, and I'd argue food assets as well, to bridge the gap towards a sustainable future, then America should maintain her standard of living and shake off the hopelessness that has enveloped so many.
Of course, government policy will play a role. We need efficient regulation which allows responsible development of our resources without harming the environment. We need less government spending. We need to take alternative energy more seriously as the oil and natural gas we have available for the next couple decades will only be cheaply accessible for so long.
Where to Invest
In my MarketWatch.com articles I have discussed inflation several times. In one recent column I laid out The New Class of Winners for Inflation. Here I will expand on that premise much more specifically and expand it to include Canadian and to a lesser degree Mexican resource investments. You see, Canada has massive resources as well and several circumstances that will make it a winner going forward too.
Here is my very simple outlook for the rest of the decade:
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