Digest: Your Burger Is About to Get Way More Expensive

Plus, the Debt Market Is Warning of Trouble Ahead. 

Welcome to the digest… my breakdown of the things we’re thinking about and talking about in the Global Intelligence world. 

First up this week… your burger and steak are about to get more expensive. 

I regularly write about how “sticky” inflation is, and how the Federal Reserve has little power to tame it, despite its rapid interest rate hikes. 

Well, sadly, we’ve just gotten further evidence of this… and it’s bad news for meat lovers. 

The number of cattle in the U.S. has fallen to its lowest figure in a decade, due to rising droughts, pandemic supply-chain issues, and across-the-board cost increases. 

This has made raising cattle unsustainably expensive, prompting many farmers to sell off large portions of their herds. 

As one Nebraskan rancher told my former colleagues at The Wall Street Journal, “we’re spending $1 million to make $4,000 [in profit].” 

U.S. beef production is projected to drop by more than 2 billion pounds next year. That would mark the biggest annual decline since 1979. 

Amid this supply crunch, beef prices are soaring.  

Prices for burgers and other ground beef products are up almost 20% since 2020 and are expected to hit record highs during barbecue season this summer. Analysts at Rabobank, an agricultural lender, estimate that ground beef prices could hit $5.33 per pound this year. 

It’s a similar story with other beef products like steaks. Restaurant chains like Ruth’s Chris and LongHorn Steakhouse are warning that their costs are set to rise due to higher beef prices over the coming year or two. 

Herein lies the problem with inflation.  

The Fed can raise interest rates all it wants, but that’s not going to fix the problems we have with droughts or pandemic supply-chain snafus that are still working their way through the system. 

This is going to be a prolonged era of “sticky” inflation (and more expensive burgers). 

*** 

Next up… a little-discussed sign of economic trouble ahead. 

If you look at the surface data, everything feels broadly fine with the U.S. economy. 

Unemployment is very low, inflation has been falling (though it remains high), and a deep recession has failed to materialize. 

The thing about these rosy indicators, however, is that they don’t chime with reality. When I talk to friends and family back home in the U.S., there’s a palpable sense that times are tough economically… and that tougher days lie ahead. 

And that’s precisely what you find when you look beneath the surface… 

For the past 30 years, recessions have closely tracked one thing: the debt market. 

This market tracks the flow of money from banks and other lenders to businesses and families. The more lending going on, the stronger the economy.  

Low levels of lending, however, are a major warning sign. And, well, I think you can guess what’s been happening… 

Loans are becoming pretty hard to come by in America. Amid the recent failures, banks are becoming risk-adverse… charging higher interest rates on loans and demanding more collateral from borrowers.  

Higher interest rates, in turn, are discouraging people from borrowing for things like mortgages, collapsing demand for loans. (The 30-year fixed-rate mortgage averaged 6.79% in the week ending June 1.) 

It’s a similar story in the bond market, where businesses go to raise capital. Sales of new corporate bonds have fallen sharply, as investors pursue safety over higher returns. 

Now companies that need to borrow to survive are struggling to keep their heads above water. According to S&P Intelligence, corporate bankruptcy rates are at a 13-year high.  

In this environment, the best thing to do as an investor is to diversify some wealth out of the dollar by owning gold, non-dollar assets like foreign currencies (Swiss franc), and stocks priced in foreign currencies that spin out dividends in foreign currencies.  

*** 

Finally, F1 starts issuing tickets as NFTs. 

More than two years ago, in March 2021, I wrote to you in a column that NFTs would change the world… specifically noting that they would be used to issue tickets. (I used the example of airline tickets in that article, which you can read here.) 

Well, just this past weekend, Formula One became the latest major organization to begin doing just that.  

NFTs, or non-fungible tokens, are one-off, one-of-a-kind cryptos. Since every NFT is unique, they can be used to represent ownership of a unique asset, like a one-off piece of art or a unique seat on a flight or at a sporting event. 

At the Monaco Grand Prix last weekend, the most prestigious on Formula One’s pretty glittering calendar, Platinium Group, the leading ticket issuer for F1, released NFT tickets on the Polygon crypto network. 

The advantage of these tickets is that they not only provide access to the race, but can be personalized to offer other benefits, like access to hospitality or future race discounts. And users did not need any crypto experience to download or use the tickets. 

Programmable tickets like these are the future, and it’s telling that Formula One, arguably the world’s wealthiest sport, is one of the first-movers in this space.  

That brings us to the end of this week’s digest. Many thanks for being a subscriber. And if you have any feedback or questions, reach out through the contact form on the Global Intelligence website. 

Enjoy the rest of your Sunday.