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The Numbers: Commodities, Foreclosures, Oil, Taxes – All Up

January 13, 2011

Path to Well-Being suggested for 2011 to have a Plan ‘B’ this year. I based that on late 2010 reports on commodities, global weather changes, and the weak U.S. recovery. Part of Plan ‘B’ would be to stock your pantry to hedge inflation as it is arriving soon.

Crop Price Increasing – (source: Wall Street Journal)
Crop prices are up due to global weather. Corn consumption in emerging markets is up. Use of corn for ethanol production is up.

Evidence of tightening global food supplies grew as the U.S. Agriculture Department cut its estimates for global harvests of key crops and raised some demand forecasts, adding to worries about rising food prices.

Prices of corn and soybeans leapt 4% Wednesday and wheat gained 1%, continuing the broad rally in commodity prices that began in June. With yesterday’s gains, prices of corn futures contracts are now up 94% from their June lows; soybeans are up 51% and wheat is up 80%.

The USDA’s revisions reflect the impact of dry weather in South America and floods in Australia, which have compounded supply constraints that first started to emerge in the middle of last year, when a drought in Russia ravaged that country’s wheat fields. The agency also cut estimates for U.S. harvests of corn and soybeans.

At the same time, demand is increasing. The USDA said ethanol producers likely will increase their use of corn, and consumption by emerging market countries continues to be strong.

State Taxes Up
Illinois to raise personal state taxes to increase 67% as announced by Governor today. Without increase in taxes and/or Federal bailout, states like Illinois with gigantic debt problems will default on their Municipal debt and upset the municipal bond market. California will ask Californians to extend taxes scheduled to expire in June to help avert municipal bond default and begin whittling away its massive $26 billion debt. Texas has said it will pare their state budget without tax increases, essentially kicking the can down the road. Michigan, Nevada, and Rhode Island are all grappling with similar scenarios.

Foreclosures to Increase
Realty Trac today reported.… A growing number of delinquencies and foreclosures on government-backed loans —combined with generous incentives for purchasing foreclosed homes owned by Fannie Mae, Freddie Mac and HUD — means buyers and investors will have plenty of opportunities in the coming months to pick up properties at bargain prices with low down payments and preferred financing.

Oil is at $98.6 a barrel today largely due to the shutdown of the Alaska Pipeline. The increase will affect all types of production.

Bottom line for 2011, inflation is starting to rear its ugly heard. Buy at today’s prices to hedge future price increases. Do not take on new debt. Stay liquid. Still time to be the ant and not the grasshopper.

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