Dark ‘N’ Stormy: Hunger Games And A Word On Macro Mission Creep

Last weekend, I spent a few hours writing a two-part series on hunger and starvation.

“What Does It Mean To Starve?” touched on the difference between, on one hand, malnutrition and food insecurity, and, on the other, literal starvation, where that meant historical instances of the populace being unable to source enough calories to stay alive.

“Feast, Famine And The Fed,” took a look at the role of US monetary policy in contributing to the rise in global food costs.

Between those articles, I said just about everything I wanted to say on the subject, at least in the near-term. And yet, as these things go, the latest read on the Food and Agriculture Organization’s global price gauge compelled me to put digital pen to digital page again in the service of raising awareness.

Allow me a tangent (it’s Friday, after all).

I’ve mentioned this before in conversations with regular readers. One of the most difficult things to control when it comes to writing daily commentary (of any sort) is mission creep. As a former employer once put it, while describing himself to me over drinks, “I don’t miss anything and I remember everything.” The same is true of me. In fact, I even remember what drink he ordered that evening — it was a Dark ’n’ Stormy. Here’s some advice, folks: Never trust a man who orders anything other than plain bourbon or scotch during a bar-based job interview.

The difference between us (him and I) is that I realize it’s impossible to pen the definitive take on everything that’s going on in the world. I have an inflated opinion of my own intellect, so I do believe it’s possible to know more than most people about almost everything. However, it’s by definition impossible to be the recognized authority on everything in the world. Colloquially speaking, that means you gotta let some stuff go. Otherwise, you risk subjecting readers to inferior analysis. I was reminded of this a few weeks back while reading a piece called “My Brother’s Keeper,” by Ada Ferrer. I know more about Cuba than the average American, but anything I might endeavor to write would be laughably inadequate to someone like Ada.

When it comes to mission creep, it’s even more critical to exercise restraint around data than it is around topics. Once you cover a data series, you have to keep covering it. That’s obviously not true for someone who writes a weekly newsletter or for some random macro blogger who doesn’t aspire to build and maintain an engaged readership, but if I just abruptly stopped covering nonfarm payrolls next month or missed three ISM manufacturing prints in a row, at least a handful of folks would invariably email me to ask what the problem is.

I never imagined I’d actually end up in such a scenario, but here I am. And I rather enjoy it, actually. To be sure, it never surprised me that a lot of people ended up reading my semi-autobiographical macro musings or my chart-heavy, market-focused articles. Hell, I’d read those if I wasn’t me. But it’s gratifying (and still a bit surreal) to think that even a tiny, tiny fraction of market participants are interested in my musings on something as unexciting and mundane as this month’s PMIs.

Anyway, that’s some personal insight and a (very) roundabout, circuitous way of highlighting the following visual, which shows that the above-mentioned FAO food gauge has now risen for ten consecutive months.

This matters, although you wouldn’t know it from how I buried the lede. Indeed, it’s worthy of the front page in the national media.

Eventually, if what you see in the visual doesn’t abate, it could spark an international outcry among leaders in developing markets and could cause acute problems in low-income countries, especially if vaccine distribution continues along the (predictably) inequitable path it’s on now.

Imagine you live in a frontier economy. You probably don’t have access to reliable, high-speed internet, unless it’s on your phone, and you have you no idea where, when or even if, it’s going to be possible for you to get a vaccine. The idea of “vaccine shopping” (e.g., actively turning down an opportunity to get an effective shot because you want to wait on the Pfizer jab) is something you haven’t even pondered, and if it did occur to you, it would seem completely ridiculous.

So that’s you, unfortunately. And now, you notice that the cost of food is rising pretty much across the board (figure below). Sure, sugar and grain got a little cheaper in March, but not enough for you to notice, especially given how far cereal prices have run. Vegetable oil became unaffordable months ago (orange line).

“Food prices are in the longest rally in more than a decade amid China’s crop-buying spree and tightening supplies of many staple products, threatening faster inflation,” Bloomberg wrote this week, documenting the same data series. “That’s particularly pronounced in some of the poorest countries dependent on imports, which have limited social safety nets and purchasing power and are struggling with the pandemic.”

If you’re scraping out a living in a poor country, life is looking pretty “dark ‘n’ stormy” right about now, and the lime garnish is getting really expensive.

This is just another reminder of why the world’s multilateral institutions are pushing the issue when it comes to taking steps to address the needs of poor nations. The irony, of course, is that monetary policy in rich countries may ultimately end up exacerbating this already tenuous situation.

Given that, it’s hard to know what to make of the IMF’s warning to the Fed, as communicated in Chapter 4 of the Fund’s latest World Economic Outlook. To wit:

US monetary policy spills over strongly to domestic government bond yields in emerging markets, at all maturities. A surprise tightening of 100 basis points by the Federal Reserve translates into a 47-basis-point increase in two-year government bond yields in emerging markets. US monetary policy surprises also have significant effects on exchange rates and capital flows to emerging markets… Every 100-basis-point tightening of US monetary policy leads to an immediate 1 percentage point depreciation of emerging market currencies vis-à-vis the US dollar and portfolio outflows from emerging markets of 7 basis points of annual GDP.

So, ongoing accommodation in the US could well mean persistent food inflation and eventual societal unrest in the developing world, but Fed tightening could mean currency depreciation and destabilizing hot money outflows. That’s pretty vexing, no?

Just something else for Jerome Powell to ponder on his daily commute through one of America’s “pretty substantial” tent cities.