Reading time: 8 – 13 minutes
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.
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.
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.